In case you hadn’t noticed, investors are getting a lot more comfortable with risk in the financial sector—albeit with one standout: Citigroup.
Tim Backshall at Credit Derivatives Research notes today that the risk of default among the largest OTC derivative market makers fell to the lowest levels since before last year’s failure of Lehman Brothers. U.S. banks, he writes, are making the most of new-found strength in equity and credit markets. Credit spreads are getting surprisingly tight: Morgan Stanley and Goldman Sachs both saw risk, as measured by credit default swap spreads, drop over 14% this week. The outlier? Citigroup. Tim tells me that because the spreads on Citi remain “stubbornly” high, it indicates that although “the markets perception [is] that … things are a lot better than perhaps the world thought in February, Citigroup remains the riskiest of the major financials and the most at risk of failure.” Backshall views the CDS market as “the cleanest reflection of real risk or business worthiness for Citi and the fact that it is still elevated leaves us wondering.”