Regional Bank Debt Buyers On Strike

The bond market has become highly allergic to the large regionals’ debt, Bloomberg says. National City (NCC) bonds have fallen by 17 cents on the dollar since June, and now yield more than 10 percentage points above Treasuries--which means they're now considered "distressed." KeyCorp (KEY), Fifth Third (FITB) and Comerica (CMA) paper also getting pummeled.

A manager at Pimco isn’t a buyer because “I don’t think every bank out there is too big to fail.” Investment-grade bank debt now yields 4.02 percentage points above Treasuries, on average, the most since 1996 and versus 98 cents at the start of the year.

Company executives seem mystified by drop. “From a traditional corporate finance perspective, this is an investment grade company,” says National City’s treasurer. “The rating agencies say so and the balance sheet says so.”

Comments

[CLH]

Fear does strange things to people but it spells opportunity to others.

2008 Aug 20 07:24 AM

[Jas1]

Pimco is too big to make any return on company selection and since some banks may fail they underweight the sector. Pimco's strategy is instead to just to put on a large sector position and then have Bill Gross and El-Erian talk about how great it is. Keep buying Fannie and Freddie debt everyone.

2008 Aug 20 08:02 AM

[1worldcurrency]

"Ratings agencies say so" LOLOLOLOL
"Balance sheet says so" LOLOLOLOL

2008 Aug 20 08:34 AM

[JasonC]

These things will return mid teens returns over the next 5 years as normalcy returns. Twice that if you take a little risk with them (not reaching for outlier yields, just the opposite. Carry the better As and ride the spreads back to normal).

2008 Aug 20 10:54 AM

[notsosmart]

squashnut is sooooo right.great laugh.

2008 Aug 20 11:04 AM

[1worldcurrency]

JPM just downgraded LEH. Cannibals! Moody's just downgraded the Ottoman Empire.

2008 Aug 20 04:48 PM