Bond insurers obliged to pay out over Bradford & Bingley

<div>COMPANIES that provide insurance against bond defaults will have to pay out to cover the recent non-payments by nationalised building society Bradford &amp; Bingley (B&amp;B), following a key ruling yesterday.<br /><br />The International Swaps and Derivatives Association (ISDA) ruled that B&amp;B&rsquo;s failure to keep up with payments on &pound;325m of Tier 2 bonds constituted a &ldquo;credit event&rdquo;,&nbsp;meaning the insurers will have to pay out.<br /><br />This will come as good news to Legal &amp; General&rsquo;s investment arm and US investment banking giant Morgan Stanley, who originally launched the calls for the ISDA to make the ruling so they can collect their B&amp;B insurance.<br /><br />The New York-based ISDA said auctions will now be held to determine how much the issuers of the products &ndash; known as credit default swaps (CDS) &ndash; will have to pay out.<br /><br />Spreads on CDS markets &ndash; seen as an indicator of the level of investor fear over bond defaults &ndash; tightened last night, which is a sign of improved confidence on the markets.<br /><br />This reaction came as CDS traders saw the B&amp;B payouts as a reassuring sign the products can and do have an important use.<br /><br />The Markit iTraxx Europe CDS index closed at 120.5 basis points, 2.2 per cent tighter on the day.</div>