Banks' bond investors sell as their stock prices take flight

MW Banks' bond investors sell as their stock prices take flight

By Steve Gelsi

Money is flowing out of debt issued by JPMorgan, Bank of America, Citi, Wells Fargo and Morgan Stanley

Money has been moving out of bonds issued by many of the biggest U.S. banks this week, as bond spreads overall have tightened.

It's unclear exactly why this is taking place, but with banks' bond spreads tightening after the U.S. election, investors may see more potential upside in equities.

As money has flowed out of bank bonds, bank stocks have remained hot, including on Thursday.

Shares of JPMorgan Chase & Co. $(JPM)$, $Citigroup Inc(C-N)$. (C) , Wells Fargo & Co. $(WFC)$, Morgan Stanley $(MS)$, Goldman Sachs Group Inc. $(GS)$ and $Bank of America Corp(BAC-N)$. $(BAC.SI)$ all moved into positive territory on Thursday.

Even with lofty prices for stocks, some analysts see even more upside due to a more favorable regulatory environment expected under the incoming Trump administration, as well as lower interest rates and an optimistic economic outlook.

Also read: New playbook' on Wall Street powers Goldman Sachs price boost, says analyst

Overall, corporate bond investors have been selling into tighter spreads, which are about as narrow as they've ever been. That trend includes band bonds.

Last week, investment-grade and high-yield corporate bond spreads in the U.S. fell to all-time lows. It's possible that this market dynamic could signal a bubble, S&P Global Ratings said earlier this week.

Also read: Corporate bond spreads hit a record low last week - and may be an early sign of a bubble

-Steve Gelsi

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November 21, 2024 14:55 ET (19:55 GMT)

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