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The municipal bond market reeled after triple-A rated bond insurers Financial Security Assurance and Assured Guaranty Corp. (AGO) were put on watch for downgrade by Moody's Investors Service.
Several municipal bond deals that were set to carry insurance from either firm were delayed to remove the insurance, or were priced without the so-called wraps. At least $500 million in deals were affected, according to one market participant.
Muni bonds in general weakened, and some observers worried that once again, the variable-rate demand notes market will see more turmoil if skittish money market funds dump their holdings of FSA- and Assured-wrapped munis.
More broadly, Moody's actions on FSA and Assured underscore the growing aversion to muni bond insurance. The two had previously been the only firms out of seven to see their stable, triple-A ratings maintained by all three ratings agencies, which had downgraded their rivals in a turbulent period for credit markets over the past year.
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