The disconnect between the bond and equity markets can be startling at times and this one is worth noting, considering that banks are in the midst of remarking positions and conducting stress tests. The chart below, from Bloomberg, shows that the CDS (credit default swap) for C has been widening from the pack since Mar 9, the widest CDS for these banks.
Yet in terms of equity price performance since Mar 9, C is up 183%, BAC is up 94%, JPM is up 72% and WFC is up 51%. Considering that CDS for C is wider now than it was when C was trading under $1, I have to wonder whether the equity market got a bit too optimistic on C surviving.
Being a bond guy, meaning I tend to see the glass as half empty, my inclination is to believe the increased betting on Citibank defaulting.