TEXT - S&P says U.S. bank sector spreads narrow as EU banks face headwinds

Thu Dec 27, 2012 10:11am EST

Dec 27 - Banks represented 35% of the global fallen angels in 2012 (through Dec. 10). In our most recent fallen angels report, we noted that a plurality of fallen angels--14 of 40 total--is in the bank sector, and most of these banks are based in Europe. We define fallen angels as issuers that Standard & Poor's Ratings Services downgrades to speculative grade ('BB+' and lower) from investment grade ('BBB-' and higher). "Over the course of the year, the U.S. composite bank spread has tightened to 240 basis points (bps) from 404 bps," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "The tightening comes at a time when the U.S. bank system has shown more stability than the eurozone's (European Economic and Monetary Union's), despite the potential fiscal cliff." The eurozone is still feeling the pinch of high unemployment rates and austerity measures, while the U.S. unemployment rate has declined to its lowest point in four years and the Federal Reserve has announced that it will keep short-term interest rates low until the U.S. unemployment rate drops to less than 6.5%. Speculative-grade issuance has decreased from $12.9 billion to $4 billion over the past week, and the spreads have tightened by 6 bps to 560 bps. The speculative-grade spread is tighter than both its one-year moving average of 644 bps and its five-year moving average of 759 bps. Investment-grade issuance has decreased from $11.2 billion to $4.8 billion over the past week, and the spreads have tightened by 3 bps to 183 bps. The investment-grade spread is tighter than both its one-year moving average of 204 bps and its five-year moving average of 247 bps. Over the past week, the Credit Default Swap North America High Yield Index spread has widened by 10 bps to 475 bps, and it is tighter than it was at the start of the year when it was 662 bps. The Credit Default Swap North America Investment Grade Index has widened by 1 bp to 134 bps, and it is tighter than it was at the start of the year when it was 138 bps.

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