Friday, July 2, 2010

BHP (NYSE:BHP), Rio (NYSE:RTP) Credit Default Swaps Rates Lowered

After a compromise concerning the proposed mining tax with the Australian government, BHP BIlliton (NYSE:BHP) and Rio Tinto (NYSE:RTP) credit default swaps dropped.

Credit defaults swaps are used as a protection against defaulting on debt or bonds. The higher the basis points the more costly the insurance is.

For BHP, they fell 2 basis points to 91.5 basis points, while Rio Tinto fell 3 basis points to 134.5, according to prices from Nomura Holdings Inc.

This signals to investors that credit quality has improved for the companies, although at times it can be more perception than underlying reality.

Either way it's good for companies, as it lowers the cost of doing business.

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