Goldman Sachs made a $35 million bet in the credit derivatives market against California, the biggest issuer of U.S. state debt, the Financial Times reports.
The trade was the biggest such bet placed in the past few years by Wall Street banks that underwrite the state’s bond sales, according to information that the banks provided to the state.
This year, California began an inquiry into credit default swaps trading by its six major underwriters, who have earned $215 million of commissions on its bond sales since 2007.
However, California state treasurer Bill Lockyer said the effect of CDS trading on California bond prices was not significant enough to cause concern “at this time” and that the banks themselves have not bet against California debt “to any meaningful extent.” (more)
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