Ambac, MBIA default swaps trading as deep junk

NEW YORK, Nov 2 (Reuters) - Credit derivative traders are valuing bond insurers Ambac Financial Group (ABK.N) and MBIA Inc (MBI.N) as deep junk credits, belying the companies' strong "Aa1" ratings, according to data by the credit strategy group at Moody's Investors Service.

Credit default swaps on Ambac are trading at around 620 basis points, or $620,000 per year for five years to insure $10 million in debt, according to data provided by CMA DataVision.

At Thursday's close, Ambac's swaps implied a rating of "Caa1," seven levels below investment grade and 14 notches below its actual rating. Ambac's bonds are faring better, trading at levels that imply a "Ba2," rating, two levels below investment grade, according to Moody's data.

MBIA Inc's default swap spreads, meanwhile, are trading as though they carry a rating of "B2," five levels below investment grade, and 12 notches below the company's "Aa2" rating, according to Moody's data.

The cost to insure MBIA's debt with credit default swaps rose on Friday to 450 basis points, from around 420 basis points, according to CMA data.