High-Grade Derivatives Index Hits Record Weakness DJ Benchmark:
Spreads on the benchmark high-grade credit derivatives index, which measures the cost of insuring U.S. investment grade corporate debt against defaults, crashed to their weakest ever levels Tuesday as U.S. credit market investors remained gripped with fear.

Markit IG9:
The Markit IG9 index was quoted at 140.5/142.5 basis points at one point during early trading on Tuesday, two market participants said. The index closed Monday's session at 135 basis points, according to Markit. It began Tuesday at 138 basis points, analysts at Barclays Capital said in a daily note to clients. The index moved wider as market participants shrugged off news that billionaire investor Warren Buffett is offering to help out troubled bond insurers by offering a second level of insurance on up to $800 billion in municipal bonds.

Warren Buffet:
In an interview on CNBC Tuesday, Buffett said his Berkshire Hathaway Inc. (BRKA BRKB) holding company made the offer of reinsurance to bond insurers Ambac Financial Group Inc. (ABK), MBIA Inc. (MBI) and FGIC. Buffett says one firm rejected his offer and he is still waiting to hear from the other two. The offer would only back municipal bonds, Buffett said, and not other risky and complicated financial instruments. But losses on these securities have begun to rise, imperiling the bond insurers' crucial AAA credit ratings, in turn imperiling the muni bond market to some degree. Bond insurers write policies that promise to cover payments to bondholders if the entity that issued the bonds defaults. Reinsurance provides a second level of insurance on those bonds.

More Buffet:
Buffett said if the companies accepted his offer, which would likely pay off handsomely for Berkshire, the other insurers would be freeing up regulatory capital and relieving worry that the insurers might see their credit ratings cut. "It's interesting that Buffett is making this bid. On the one hand, his offer gives the bond insurers a way of raising capital, but it does not bail out the insurers," said one portfolio manager, who declined to be named. It's not like Buffett is saying he's going to buy the bond insurers and
backstop them," the portfolio manager said. Given the lack of positive macroeconomic or idiosyncratic news, investors seem reluctant to get long the market at these levels, Barclays Capital analysts said.

Participants also cited reported forced-selling of structured investments like so-called market value collateralized loan obligations as continuing to pressure the market.

These CLOs are themselves under pressure as the market for leveraged loans - debt that is secured with assets - has sunk under the weight of loan deals still in the pipeline and general risk aversion.

"From a technical point of view, this simply isn't good for the market and it supports these wider levels," a second portfolio manager said.

AIG:
AIG's announcement Monday that its credit-derivatives portfolio lost $4.88 billion in gross market value in October or November, more than four times the amount that the company had estimated in December, is also continuing to ripple through the market, other participants said. "People are wondering who is next," a third portfolio manager said. The loss prompted AIG's auditors to advise the company that it had a "material weakness" in its internal controls over financial reporting and oversight in this area.