It is becoming increasingly difficult to be surprised by some of the illogical fallout from the credit crisis. But when wrapped triple-A bonds (with a double-A underlying) start to trade outside unwrapped double-A bonds for the same name, it really does seem that all reason has departed. This is what happened in November, when the Ambac-wrapped triple-A bonds issued by BT’s Telereal vehicle were trading wider than its unwrapped double-A bonds. In other words, the market saw the fact that the bonds were wrapped by a triple-A rated insurer as increasing, rather than reducing, the risk involved....
