Seeking Alpha
Registered investment advisor, macro, ETF investing
Profile| Send Message| ()  

With the major indices surging to new all-time closing highs following yesterday's Fed taper, we checked up on default risk for the major U.S. banks and brokers to see how credit markets reacted to the news. Below are price charts going back to the end of 2010 for the 5-year credit default swaps of the six largest US banks and brokers. Prices are in basis points, but basically the number shown for each firm represents the cost per year ($) to insure $10,000 of the company's debt against default for five years.

Yesterday's rally in stocks did indeed send default risk to new post-crisis lows for the six firms shown below. Wells Fargo (WFC) remains by far the least risky firm on the street with 5-year CDS at just 41 basis points. Behind WFC is JP Morgan (JPM) at 68 bps and Citigroup (C) at 73 bps. Bank of America (BAC) has moved down to 81 bps, and then Morgan Stanley (MS) and Goldman Sachs (GS) are both in the 90s. Goldman is currently seen as the riskiest play of the six firms below, but at 95 bps, the credit markets are not concerned.

Source: Broker Default Risk Hits Another Post-Crisis Low