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.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV