Although the near term outlook for U.S. banks remains dismal, bond investors are betting the government will bail out behemoth financial institutions even as it lets some automakers fail.
As flagship automakers struggle to avert bankruptcy and with fears growing that government funding for them will soon dry up, investors in the companies have watched the bonds’ prices drop to pennies on the dollar.
By contrast, bonds of major financial institutions the U.S. government is expected to save have clambered back from record price lows in March.
“If you look at the difference between banks bonds’ and automakers it is really in the way the government has treated them,” said Haag Sherman, co-founder and managing director of Salient Partners, a Houston based investment firm.
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