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The perceived risk of US and European companies defaulting on their debt retreated on Monday, in spite of shocking results from bond insurer MBIA and significant writedowns at HSBC, Europe’s biggest bank.

In the US, contracts on the benchmark Markit CDX North America Investment Grade index tightened by about 2 basis points to 102.7bp in mid-morning trade in New York, according to Markit Intraday data. A comparable European index of investment grade companies narrowed by 1.5bp to 78.4bp.

Five-year credit default swaps on MBIA, the beleaguered bond insurer, narrowed in spite of its $2.4bn first-quarter loss. The cost of protecting $10m of MBIA’s debt over five years fell by $2,500 to around $850,000 annually. But MBIA’s parent company - MBIA Inc - fared less well, with traders demanding an upfront payment of $1.9m plus $500,000 annually to take on the risk of default.

MBIA raised eyebrows recently with its decision to hoard $1.1bn of $2.5bn in capital raised at the holding company level, instead of using it to support the insurance unit.

MBIA Inc has yet to pass on $1.1bn of capital to its insurance subsidiary, three months after raising the money to defend the unit’s AAA credit rating.

The cash, raised in a February stock sale, is being held at the parent company, while Armonk-based MBIA develops a plan for the company’s legal and operating structure, MBIA chief executive Jay Brown said in a letter to shareholders.

“Given the more than adequate liquidity in both our insurance and asset management businesses, there is no compelling reason to move this cash at this point,'’ Mr Brown said.

MBIA was criticized by Fitch Ratings, which on April 4 said the decision raised the risk that the cash may not end up as capital for the insurance unit as MBIA had promised. While Fitch downgraded MBIA to AA from AAA, Moody’s Investors Service and Standard & Poor’s cited the capital raising as a reason for keeping the insurance unit’s credit rating at AAA.

Regulators are waiting for MBIA to contribute the funds, according to New York State Insurance Department Deputy Superintendent for Property and Capital Markets Michael Moriarty.

“It was never our expectation that the funds raised would go anywhere other than to the insurance subsidiary,'’ Mr Moriarty said.