CDSs tighten on US banks

The cost of credit protection on US institutions plummeted yesterday, as investors reacted positively to news that the Treasury will take $125bn equity in nine US banks.

Former investment bank Morgan Stanley, in which Japanese bank Mitsubishi UFJ will invest $9 billion for a 21% stake, saw its five-year credit default swap (CDS) spreads tighten drastically to 427.1 basis points from 816.7bp the previous day. The cost of credit protection on Morgan Stanley hit a record 1300.9bp on October 10.

Goldman Sachs, which, along with Morgan Stanley, applied to become a bank holding company last month, saw its CDS spreads drop to 201.7bp from 386.7bp on Monday.

Meanwhile

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