The premium investors demand for buying bank bonds as opposed to government debt, known as the "spread," is nearly back to where it was before the 2008 crisis, Gibbons says. Still, she does not attribute the lower premium to investor certainty that they will be paid in full in the event of a bank failure. Instead, she sees it as a reflection of investors' belief that banks have strengthened their balance sheets and so are far less likely to fail than they have been in some time.
Gibbons continues to like bank debt as an investment, arguing banks are safer than they have been in several years but their debt still looks cheap from an investor perspective compared to where it traded before the crisis. Also, unlike companies in other industries, banks do not face the risk of being loaded up with debt in a potential leveraged buyout. Recent announcements involving Dell Inc. (DELL) and H.J. Heinz Co. (HNZ) have put that threat firmly back in the minds of credit investors.
-- Written by Dan Freed in New York.