Financial Credit Default Swap Prices Return to Earth

During the peak months of the financial crisis in late 2008 and early 2009, default risk as measured by the cost to insure the debt of US financial firms skyrocketed. For the firms that made it through the crisis and didn't actually go under, default risk has dropped dramatically, indicating that investors have become much more comfortable with Wall Street in recent months.

Below we highlight the change in credit default swap prices for the major US financial firms from the start of 2008 to their peaks, as well as the change from their peaks to now. As shown, Morgan Stanley CDS prices rose the most of firms that made it through, followed by Citigroup, Goldman, and Bank of America. Default risk rose the least for Wells Fargo and JP Morgan. Since the peak of the crisis, default risk has also fallen the most for Morgan Stanley at -90%. Goldman has seen its CDS prices fall 82% to under 100 bps, and JP Morgan ranks third in terms of default risk decline. JP Morgan currently has the lowest default risk of the firms highlighted.

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