Dubai default swaps show no distress on bailout bets

Dubai’s debt risk, after jumping the most last week since January, is still below the level signaling a potential failure as investors expect the emirate will be rescued by oil-rich neighbour Abu Dhabi.

The cost to protect against Dubai reneging on obligations doubled last week after state company Dubai World, with $59 billion of liabilities, sought a “standstill” agreement from creditors. The amount investors demand to insure $10 million of Dubai debt fell on Monday to $574,000 a year from $647,000, less than the price of $1 million, or 1,000 basis points, associated with borrowers considered distressed.

Dubai triggered the biggest stock market slump in three months in Asia and Europe’s worst rout since April as the proposal for Dubai World risked adding to the $1.7 trillion of losses and writedowns suffered by banks in the global credit crisis. Commerzbank AG, Bank of America Merrill Lynch and Banque Saudi Fransi, the Saudi lender partly owned by Credit Agricole SA, say Abu Dhabi is likely to bail out Dubai rather than risk driving investors from the region because of a default.“I’m not desperately worried that we’re going to go into some death spiral,” said Nicholas Field, who helps manage in emerging-market stocks at Schroders Plc in London.