Steve Blitz Morning Notes

Given how today's markets were driven by leaks on stress tested capital needs, this chart from Bloomberg informs that the debt markets shared the optimism of the equity market. Although these charts from the Bloomberg aren't always the easiest to see the general slope of the lines are pretty clear -- CDS spreads have been narrowing since the end of March. Today, not surprisingly, saw a sharp drop in the pricing for bank CDS (BAC, C, JPM, WFC) . In particular C, whose 5 year spread closed at 439bp, it was 606bp on Apr 28. While some banks are perceived to have less default risk than others, namely JPM, all CDS are higher than they were last summer.

Markets are pricing to a risk/reward plateau that compensates fairly (in my opinion) for holding securities while waiting to see whether a recovery is underway sooner rather than later and to some forecasters much later than that.