Ambac CDS auction produces low final price

Friday’s Ambac Financial Group credit event auction produced a very low final price of just 9.5, with recovery swaps having previously traded in the 20/24 region and credit default swaps in the mid-high 70s. 14 dealers submitted inside markets to arrive at an initial inside midpoint of 12.75. However, the price was knocked down subsequently as physical settlement requests produced a net open interest of $407.9 million to sell, as only Morgan Stanley placed a sizeable bid. Limit orders were mainly in small size, meaning more than 50 were wholly filled.