“We’re seeing the start of the next leg of the crisis and that’s going to be financial bondholders taking a haircut as lenders default,” said Mehernosh Engineer, a London-based strategist at BNP Paribas. “There’s been a perception that banks’ senior bondholders are untouchable but that’s going to change. The crossing of the financial and corporate indexes “is clearly not a healthy sign,” according to Engineer. Solvency concerns mean that the distortion may continue, “a fact being reflected in cash bonds over the past month,” he said.Of course, Vikram's memo today must have put all fears aside and made it obviously clear to everyone just how stable the U.S. financial system truly is so it will be curious to see if the credit market (which somehow is still rational at least compared to its equity counterpart), at least as represented by iTraxx Fins, follows suit and tightens substantially tomorrow.
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