Bank CDS/What’s going on?

The giveback of the June gains over the past few days in the S&P’s has been matched by the corporate credit markets where the CDS on the HY and IG index are back to the levels of late May. The action in the bank sector specifically is most interesting. On May 7th the results of the Treasury ‘stress test’ was revealed and some banks were told to raise money as a result and fortunately those chosen did, more than $65b in total with BAC alone raising more than $30b. The capital raising plugged holes based on a set of scenarios laid out by the Treasury. While its only a few days action, the CDS market is wondering whether it was enough. BAC 5 yr CDS is at 263 bps, the highest since May 5th and up from 230 yesterday and 135 on June 1. Citi is at 497 bps up 50 bps on the day at the highest also since May 5th and up from 320 bps on 6/1. WFC is at 157 bps, the highest since May 7th, up 12 bps and up from 115 bps on 6/1.

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