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 (NYSE:KEY), Fifth Third (NASDAQ:FITB) and Comerica (NYSE: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.”