Investors remain wary of bank bonds, though the recent turmoil in the capital markets has created some fetching bargains.
Spreads-the gaps between the yields on corporate bonds and Treasuries-on corporate bank debt have widened by seven to 20 basis points in the past week because of currency problems in Southeast Asia and Latin America.
Bank bond analyst Katherine Rossow of Chase Securities Inc., the brokerage arm of Chase Manhattan Corp., said spreads have become much wider though the currency crises haven't made bank bonds much riskier than they were.
Ms. Rossow said that risk in emerging markets is generally "not a problem. When you have currency risk, the first thing that people want to do is put their money someplace safe, and Citicorp in many of these countries is considered safe. So Citicorp ended up being the beneficiary of the flight to quality."
Ms. Rossow pointed out that the spread on Amsouth Bancorp.'s bonds widened 12 basis points, making its debt especially cheap. Other bank bonds that became more attractive include those of Comerica Inc., with a spread 19 basis points wider; Wachovia Corp., 17 points; CoreStates Financial Corp., 14 points; and KeyCorp, 13 points.
Still, it may be a while before investors venture back into bank bonds with the same enthusiasm they showed before the turmoil, said other analysts.
"A few select investors are buying, but not everybody is grabbing at these spreads," said bank bond analyst Stanley T. August of First Union Capital Markets.
"Investors are being more selective. People want to see what the fallout is; they will probably wait until fourth-quarter earnings."