The cost of insuring against global bank defaults has plunged to its lowest level since the financial crisis in a sign that investors are willing to bet the industry has become safer.
Buyers of bank debt often purchase “credit default swaps,” a type of derivative that helps insure their investments against a default. The price they are paying for that protection is now the lowest since the collapse of Lehman Brothers in September 2008.
“We’ve gone back to pre-crisis levels,” said Brian Monteleone, analyst at Barclays. “Capital is much higher today than it was pre-crisis. The economic environment is vastly improved. Regulations are in place today that didn’t exist five to 10 years ago that increase confidence that the ability of banks to get too levered is reduced.”
The price paid for bank CDS is viewed as a gauge of a financial institution’s perceived riskiness. The premium paid for protection or “spread” widened sharply in 2008 and early 2009, indicating that investors were willing to pay more to insure against a default or to bet against the creditworthiness of a bank.
Since then, regulators have launched wide-ranging efforts to reform the financial system, including requiring banks to raise more long-term capital and remove riskier assets from their balance sheets.
Five-year CDS protection on bonds issued by Goldman Sachs, Morgan Stanley, Wells Fargo, Citigroup and Bank of America this month reached their lowest levels since late 2007 or early 2008, according to Bloomberg.
JPMorgan Chase is the only leading US bank that has not touched a pre-crisis low recently. CDS on its debt fell to 47.6 basis points last week – the lowest since January 2010.
In Europe, bank CDS levels declined sharply after the ECB’s new stimulus announcement. At Barclays, the cost of CDS fell to 50 bps, its lowest since February 2008. BNP Paribas and Société Générale have seen their CDS levels drift to 56.5 bps and 62.3 bps respectively, the lowest since early 2008.
While demand for CDS that protects a single company’s bonds has generally diminished in favour of indices with multiple corporate credits, “single-name” swaps on large US and European banks remain some of the most liquid in the world.
A Barclays index of CDS on US banks dropped to 86 bps this month, the lowest level since July 2007, and a far cry from the 701 bps reached in March of 2009, just before the Federal Reserve announced its emergency bond-buying programme.
The Markit iTraxx Europe Senior Financials index, which includes 25 European banks and financial firms, has fallen to 60 bps. That is the same level as the Markit iTraxx Europe Main, which includes 125 mostly non-financial corporate credits, indicating that investors are no longer differentiating strongly between banks and other types of companies.
根据彭博(Bloomberg)的数据，针对本月由高盛(Goldman Sachs)、摩根士丹利(Morgan Stanley)、富国银行(Wells Fargo)、花旗集团(Citigroup)及美国银行(BoA)所发行债券的五年期CDS保护产品价格跌至2007年末2008年初以来的最低水平。
在欧洲，在欧洲央行(ECB)公布新的刺激措施之后，银行的CDS也出现了急剧下跌。巴克莱银行的CDS成本跌至50个基点，这是自2008年2月以来的最低水平。法国巴黎银行(BNP Paribas)和法国兴业银行(Société Générale)的CDS成本则分别跌至56.5个基点和62.3个基点，这是自2008年初以来的最低水平。
涵盖25家欧洲银行和金融机构的Markit iTraxx欧洲高级金融指数(Markit iTraxx Europe Senior Financials)跌至60个基点。这与涵盖125家企业（这些企业多数是非金融机构）信贷的Markit iTraxx欧洲主要指数(Markit iTraxx Europe Main)处于同一水平。这表明投资者不再明显区分银行和其他类型的企业。