From CDOs to CDS

The problems in the CDO market are now having an impact on the cost of insuring against default. The FT reports that the financial institutions with a number of different links to the CDO market have been hardest hit.

Along with other areas of the CDS markets, these groups recovered some ground on Thursday, but BoA for instance was still trading at a spread of about 20 basis points – which means it costs $20,000 annually to insure $10m worth of its debt over five years. This is up by about one-third since the start of the week.

BoA has direct lending home owners, a business in packaging CDOs and holdings of CDO products. Other financial institutions have less exposure.