President Obama's proposals to limit the size of banks helped wipe out $430 billion of financial companies' stock market value and also made their bonds irresistible to some of the nation's biggest investors.
Banks in the MSCI World Index fell 7% since Jan. 12, while the extra yield investors demand to own their bonds instead of Treasuries widened to 238 basis points, from a low of 224 basis points, or 2.24 percentage points, on the same day, according to the Bank of America Merrill Lynch U.S. Corporates, Banks Index.
That compares with a median spread of 119 basis points during the past five years.
Obama asked Congress on Jan. 21 to restrict the size of banks, curb proprietary trading and prohibit them from investing in hedge and private-equity funds to prevent a repeat of the worst credit crisis since the Great Depression.
While the rules would hurt shareholders by restricting growth, they would may make the bonds more appealing by reducing the risk the firms take, said Tom Houghton, a vice president and portfolio manager at Advantus Capital Management in St. Paul.