This is pretty damned FUGLY: Click for larger graphic

click for larger chart

Mark Gongloff explains the pain:

“In the credit-default swap market, spreads are wider across the board, meaning people are paying up for protection. The Markit investment-grade corporate debt index is 3 basis points wider. The index of European sovereign debt is 10 basis points wider. The index of European financials is also 10 basis points wider.”



Bank of America CDS Spread Nears Record As Credit Market Misses Rally Memo
Mark Gongloff
Marktbeat, August 23, 2011, 9:05 AM

Category: Bailouts, Credit, Derivatives

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Bank of America Credit Spread: FUGLY”

  1. T_S says:

    Hey no problem. Dick “C is the buy of a lifetime at 20 (I mean 200 now post split!)” Bove
    just said everything is fine, and they have no need to raise capital.

    So someone is seriously wrong here. Either they don’t need to raise capital, and this
    is easily a 10-dollar stock. Or they have a lot further to go.

    Anyone buying straddles?

    good luck


  2. [...] Bank of America Credit Spread: FUGLY (Ritholtz) [...]

  3. louis says:

    What’s Whalen saying about these guy’s? Are they dead.

  4. rktbrkr says:

    Blodget (FWIW) says BAC may need 200B additional capital, “may”

  5. Disinfectant says:

    Can anyone explain why the CDS is back to March 09 levels, but BAC bonds and preferred stock are significantly higher than then (though they’re down too, obviously)? One of these prices is wrong; which one and why?

  6. tagyoureit says:

    BAC seismograph…

  7. Orange14 says:

    When I looked the other day at the BAC bonds, I saw that PIMCO has a pretty large holding. Now they don’t rely on S&P for bond ratings and are pretty savvy investors. As Disinfectant notes above, who is right and who is wrong? Are the BAC insiders loading up on cheap stock given the convictions expressed by Moynihan on the Fairholme call two weeks ago? Inquiring minds want to know!

  8. Robespierre says:

    “paying up for protection”

    Funny how the same terminology is used by the mob

  9. Robespierre says:

    @Disinfectant Says:
    August 23rd, 2011 at 2:05 pm

    “Can anyone explain why the CDS is back to March 09 levels, but BAC bonds and preferred stock are significantly higher than then ”

    I smell that BAC will push their separate bzns formerly known as “Mozilo retire rich gravy train” into BK to isolate the core bank.

  10. klhoughton says:

    CDS is a less liquid market. There is a question of how far the Bernanke Put can be extended; wiping out the common equity but protecting the debt instruments is a nice, er, default assumption.

    Also, what Robbie Pete Said.

  11. Disinfectant says:

    That doesn’t explain the difference between CDS and senior debt prices. CDS payoff is based on BAC default, not CFC or MER or some other subsidiary default. And in the highly unlikely event of BAC default, CDS payoff is determined by senior debt recovery prices, so they should be moving in tandem. Yet, the best yield I see on BAC senior debt is about 7.4% on 25-year bonds. 7.4% is extraordinarily far removed from the implied default assumptions of CDS at 372 bps. In March ’09, the bonds traded at 40 cents on the dollar; today, 90+.

    I understand if people want to take down the stock price due to the negativity on BAC’s earning potential (I think they’re making a mistake, but that’s my opinion vs. theirs). But the matter of the CDS vs. cash bonds simply makes no sense to me. I am operating under the assumption that the bonds are right and the CDS are wrong. But still, where’s the arbitrage to bring the prices in line? Consider me confused.

  12. Isn’t that called reversion to the mean?

  13. ….and by the mean I mean out of debt fairy land and back into overextended real world valuation of what that debt is actually worth?

  14. macrotrader603 says:

    every day is a good day to sell the banks…especially today

  15. hammerandtong2001 says:

    If the US taxpayer bails out BAC – again – I’ll eat my hat.


  16. CitizenWhy says:

    Aren’t all the big banks really insolvent, kept alive by the vampire nurturing Federal Reserve at the taxpayer’s expense? Their “assets” are dominated by those “toxic assets” TARP was supposed to buy up and never did. Aren’t those assets kept on the bank books at 100% of value when they could not sell for more than 30% of value?

  17. Rouleur says:

    …well, what is the surprise here?

    @Disinfectant…careful, be very careful…

    …it is a religion, you know…i sure hope you are short term…and hedge seriously, but, that’s just me…and my religion…

  18. Disinfectant says:

    Not sure if you’re talking about Barry’s “never average down” religion or his readers’ perma-bear religion, but I subscribe to neither (Barry is my favorite blogger, though!). I average down whenever the opportunity arises and there is cash to do so and have never hedged/shorted a single dollar, yet my results have been quite good – about 25% per year for the past 7 years. It’s called long only value investing and is anathema to most, but very effective for those with the stomach.

    Long CFC TruPS.

  19. smedleyb says:

    Down 2% on a day the BKX goes all gangbusters lifting 4%?

    Why is it every time someone goes on record saying BofA doesn’t need to raise capital, I can’t help but think they need to raise capital?

  20. [...] Bank of America Credit Spread: FUGLY (August 23, 2011,) [...]

  21. Disinfectant says:

    Buffett is buying in to BAC. My CFC TruPS are looking quite good right now, aren’t they? Glad I wasn’t scared or hedged like the rest of y’all.