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Citis Credit Barely Tighter

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by Felix Salmon
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Nov 24 2008 11:11am EDT

Citi's Credit Barely Tighter

While most people are looking at the share price, Alea has the Citi CDS datapoint: 19bp tighter, at 482bp. That seems disappointing: what kind of a rescue is this, if Citi is still trading at levels more normally associated with junk bonds?

But the one thing we've seen quite consistently over this crisis is that while spreads can gap out quite dramatically, they generally come back in more slowly -- even when the US government is providing help or guarantees. Look at Frannie and AIG as cases in point. Given that it's going to take a while for the markets to fully digest the details of the Citi bailout -- what's been guaranteed, what hasn't -- it makes sense that the CDS market isn't rushing to judgment.

Remember too that although the stock market might look like it's doing well this morning (Dow up 300), in fact it's still very low (Dow 8,300, S&P 832) and looks healthy only in a directional, not in an absolute, sense. And as far as Citi in particular is concerned, I suspect its spreads will remain wide so long as the stock remains in single digits.

Update: As per Alea's update, the spread's now come in to 250bp.

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