Credit Markets Beginning to Thaw

Cited here are Goldman Sachs (GS), Citigroup (C) and Bank of America (BAC).

Recent developments in many indicators of credit stress have been very positive. The credit markets are beginning to thaw (unlike the upper Midwest). Perhaps the most notable development is the decline in the Treasury-Eurodollar, or TED, spread. This is a measure of banks' willingness to lend to each other, and thus their confidence that the other bank will be there a few months from now.

During the October credit crisis, the TED spread rose to an unprecedented 4.63%, well above the 2.00% it reached in the Bear Stearns wave of financial distress. It is now back down to under 1.0%. While this is still much higher than its prevailing level up until about 18 months ago, it is in line with where it was last summer. This is one of the more encouraging events I have seen in a long time.

I still think it is too early to go back into the equity of banks like Goldman Sachs (GS), Citigroup (C) or Bank of America (BAC), but on dips the senior debt of these sorts of firms could be interesting. For example, long-term debt of GS (due 10/37) is now yielding 8.22%, a very fat premium over the 30-year T-bond yield of 3.02%.



Read the full analyst report on GS

Read the full analyst report on C

Read the full analyst report on BAC

Read the full analyst report on GS

Read the full analyst report on C

Read the full analyst report on BAC