Credit Suisse Default Swaps Widen, Bonds Sink As Optimism Fades

(Bloomberg) -- Credit Suisse Group AG’s woes deepened on Thursday, with the cost to insure the bank’s debt against default rising as its bonds fell deeper into distress. Early gains prompted by the lender saying it would tap Switzerland’s central bank for fresh liquidity were erased. 

Traders indicated one-year credit-default swaps at 19 to 25 points upfront, up from 10.5 to 17.5, according to people who saw the quotes. They were indicated between 20 and 30 points on Wednesday afternoon. Wide bid-ask spreads tend to emerge in illiquid or risky names, where it’s hard to match buyers and sellers of credit protection.

The last recorded quote on pricing source CMAQ was about 3,141 basis points at 13:27 a.m. London time after falling below 2,500 basis points in the morning. Spreads over 1,000 basis points in one-year senior bank CDS are extremely rare and regarded as a sign of distress. Major Greek banks traded at similar levels during the country’s debt crisis.

“People will be questioning how well the bank is actually being run, particularly in the aftermath of the various scandals it’s been involved in recently,” said Joanna Ford, a restructuring partner at Cripps.

Investors “will still be very concerned by the fact that it needed to borrow the money in the first place,” she said, referring to its funding lifeline with the Swiss National Bank.

Credit Suisse didn’t immediately reply to a request for comment.

Read more: Credit Suisse CDS Hit Crisis Levels as Banks Seek Protection (1)

Support from the SNB, which offered as much as 50 billion Swiss francs ($54 billion) from its liquidity facility, had brought some temporary relief to Credit Suisse and risk gauges for the broader European banking sector. That fizzled, especially after European Central Bank Vice President Luis de Guindos told finance ministers on Tuesday that some European Union banks could be vulnerable to rising interest rates.

ECB’s Guindos Told Ministers Some EU Banks May Be Vulnerable (1)

Bond Fallout

The lender’s 1.305% dollar-denominated bond due 2027 plunged by 15.5 cents to 56.5 cents, trading at spreads of about 1,900 basis points — a level associated with distress. Several other of its bonds fell by about 10 cents on the dollar and the debt continued to weaken after the European Central Bank delivered a planned half-point increase in interest rates.

Meanwhile, senior unsecured euro-denominated bonds due March 2029 reversed earlier gains, dropping about 2 cents on the euro to trade at 69 cents, according to data compiled by Bloomberg. The declines follow record losses in the debt on Wednesday.

Read more: Credit Suisse CEO Tells Staff to Focus on Facts to Stem Turmoil

Credit Suisse bonds were among the most active in Thursday US credit trading. Its bond due 2028 had the most volume.

Read more: Credit Suisse Seeks Circuit Breaker With $54 Billion Line

--With assistance from .

(Updates pricing in second paragraph, adds chart, detail on volume in third paragraph.)

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.