Moody's Slashes AAA Rating For MBIA And Ambac Financial; Treasurys Up

New York, NY (AHN) - Moody's Investors Service said it has downgraded its "Aaa" credit rating of MBIA Inc. and Ambac Financial Group Inc., pulling down its shares during early trading on Friday

Moody's Investors service slashed ratings of MBIA and Ambac Financial to "A2" and "Aa3", respectively, over fears related to their financial condition.

"Ambac's significantly constrained new business prospects, its impaired financial flexibility, and increased expected and stress-loss projections among its mortgage-related risk exposures relative to previous estimates," Moody's said in a statement.

The rating firm placed a negative outlook on both the troubled bond-insurance firms, adding that both could face additional downgrade.

Moody's added, "MBIA remains strongly capitalized, estimated to be consistent with a Aa level rating, and benefits from substantial embedded earnings in its existing insurance portfolio, these other business factors led to the lower rating outcome."

Moody's projected that MBIA's losses related to securities backed by residential mortgages could reach $5.9 billion, while it is $2.6 billion short to regain its triple-A rating.

Shares of MBIA plunged by 11 percent and Ambac Financial shares fell by 2 percent in New York Stock Exchange trading on Friday.

The investors started focusing on Treasurys on Friday after the ratings of the two bond insurers were cut. Bond prices and yields move in opposite directions.

The benchmark 10-year note increased by 20/32 to 97 29/32, yielding down to 4.13 percent compared to 4.21 percent registered late Thursday.

The 30-year long bond increased by 26/32 to 94 22/32, yielding down to 4.7 percent compared to 4.76 percent.

The 2-year note gained by 7/32 to 99 19/32, yielding down to 2.83 percent compared to 2.94 percent late Thursday.