Traders turn their sights on BofA as dealers trade dealers

The most active names traded by credit derivative dealers yesterday were… credit derivative dealers, as it became increasingly likely that other investment banks would be dragged into the CDO mis-selling investigations currently centred on Goldman Sachs.

Earnings have become an irrelevance to the credit market, as bank after bank has reported better than expected first quarter results, only to see their spreads widen.

Traders say there was particularly active protection-buying on Bank of America yesterday, driving its five-year spreads wider by 12bp to around 140bp. The name has now widened by almost as much as Goldman Sachs since the fraud charge news broke on Friday, up 40bp since then compared to Goldman’s 45bp widening.

Over the same period, Morgan Stanley and Citi have moved in lock-step, widening around 25bp in that period to around 150bp. JP Morgan, which trades at a much tighter spread, has widened slightly more in relative terms, up 20bp to 76bp, according to traders.

Despite the big moves by these financial names, the overall credit market ended yesterday little changed, with all the main credit indices flat to slightly weaker.