NEW YORK (Reuters) - The cost to insure the debt of Bear Stearns Cos BSC.N surged on Monday and its share and put options were active on concerns the company may be facing liquidity problems.
Bear Stearns chairman of the executive committee, Alan Greenberg, however, said on Monday the market rumors were “totally ridiculous.”
The cost to insure Bear Stearns’ debt with credit default swaps jumped as high as 650 basis points, or $650,000 per year for five years to insure $10 million in debt, before retracing to 605 basis points, according to broker Phoenix Partners Group.
The swaps had traded at 465 basis points on Friday.
Shorter-dated protection also surged, indicating concerns that any liquidity problems would be more likely to manifest themselves in the short term.
One-year debt protection costs jumped to 1,050 basis points, while two year protection cost 900 basis points per year for two years, Phoenix Partners data showed.
Bear Stearns’ shares and put options also were active on Monday, while its bonds weakened to junk levels.
“Bear Stearns shares and put options are active on unconfirmed liquidity concerns,” said Paul Foster, options strategist at Web information site theflyonthewall.com in Chicago.
Investors are aggressively buying puts, which convey the right to sell the stock, Foster said.
Bear Stearns’ bonds also weakened and buying interest evaporated amid talk about liquidity problems, a trader said. “There probably isn’t even a bid for the bonds right now,” the trader said.
Bear Stearns 6.4 percent notes due in 2017 tumbled to 80.8 cents on the dollar, down about 3 cents, pushing yields up by 58 basis points to 602 basis points over Treasuries, according to MarketAxess.
Reporting by Karen Brettell and Dena Aubin in New York and Doris Frankel in Chicago; Editing by Andrea Ricci