down tomorrow ... but finger on the trigger..., page-30

Australia Bond Risk Falls By Most in 3 Months on Treasury Plan

By Laura Cochrane

July 14 (Bloomberg) -- The risk companies in Australia will default on their bonds fell by the most in three months after U.S. Treasury sought authority from Congress to buy unlimited stakes in the nation's two largest mortgage financers.

Treasury Secretary Henry Paulson, aiming to curtail a collapse of confidence in credit markets, also asked for permission to lend to Freddie Mae and Fannie Mac, which together buy or finance almost half of the $12 trillion of U.S. mortgages. Gauges of corporate credit risk in Japan fell to the lowest in more than two weeks.

``The announcement is a very positive development for the credit markets, given the U.S. government's support to the government sponsored enterprises,'' Deutsche Bank AG analysts led by Gus Medeiros wrote in a research note today.

Credit-default swap indexes in Australia and the rest of Asia will ``see a positive reaction in the next few days'' because of the region's ``high holdings'' of Fannie Mae and Freddie Mac debt, Medeiros wrote.

The Markit iTraxx Australia Series 9 Index declined 15.5 basis points to 143.5 at 10:29 a.m. in Sydney, according to Citigroup Inc. prices. The index, which drops as perceptions of credit quality improve, fell by the most since April 2.

Japan's benchmark fell 7 basis points to 133, the lowest since June 26, Morgan Stanley prices show. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt.

Credit-default swaps are contracts conceived to protect bondholders against default and traders use them to speculate on credit quality. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

Paulson said yesterday Treasury anticipates the proposal will be incorporated into an existing congressional bill and approved this week. Shareholder-owned Fannie and Freddie are government-sponsored enterprises and Paulson's plan gives investors the indication of an implicit federal backing