With Europe struggling a bit recently and the financial sector here in the US experiencing a small pullback, below is an updated look at default risk (as measured by 5-year credit default swaps) for the six largest US banks and brokers. During the big market rally we saw in August and September, default risk plummeted for the six firms below. And while default risk has increased slightly over the last two weeks, it's still very close to its lows for the year. For those worried that the credit markets might be showing some kind of underlying fear recently, you're in the clear.
At 85 basis points, Wells Fargo currently has the lowest default risk of the six firms below, while Morgan Stanley has the highest at 235 bps. It's important to note, however, that 235 bps for Morgan Stanley is a huge drop from the levels it was at just a few months ago. Interestingly, JP Morgan is the only firm that has not made a new low during the most recent rally in equities.