Bank CDS spreads widen

Not only are bank stocks taking another beating this morning, with Bank of America down 5% and the S&P financials down 2.6%, but banks are getting hit in the credit markets, too.

Bank of America’s five-year CDS spread is 13% wider this morning, to a bid of 360 basis points, according to Markit data. That had dipped well below 300 shortly after the Warren Buffett rescue, but most traces of that intervention are gone now. The record-high close was about 390, back in early 2009, and it approached that high just ahead of Mr. Buffett’s rescue last month.

Morgan Stanley’s 5-year spread is also up 13%, to 332 basis points. Goldman’s up 13% to 243 bp.

Citi’s 5-year spread is out 10% to 237 bp, and J.P. Morgan Chase is up 8% to 130 bp.

For the uninitiated, a wider spread is a bad thing, meaning investors are paying more for insurance against a credit default. Given that these banks are too big to fail, a default is unlikely, but it’s a measure of stress on the banks.


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