Wachovia's CDS tightens after Citi news: dealers

NEW YORK (Reuters) - The cost of protecting Wachovia Corp's debt with credit default swaps fell on Monday after news that Citigroup was buying Wachovia's banking operations.

Wachovia's five-year credit default swaps fell to about 550 basis points, or $550,000 a year to protect $10 million of debt, from 25 percent in upfront payments plus $500,000 annually before the news, according to data from several dealers.

The Federal Deposit Insurance Corp said Citigroup will assume Wachovia's senior and subordinated debt as it acquires the bulk of its assets and liabilities.

Citigroup's credit default swaps widened to about 416 basis points after the news from 328 basis points on Friday, according to data from CMA DataVision.

CDS spreads for Wachovia bonds that are included in the acquisition should trend toward's Citigroup's senior CDS levels, based on the implied backing Citi will provide that debt, said Daniel Barrett, analyst at Tradition Asiel Securities in New York.

(Reporting by Dena Aubin; Editing by Chizu Nomiyama)