Thoughts on bonds of banks like Morgan Stanley & Goldman?

[Bdroc]

Nowhere to go for safe income these days. Forget about CDs, treasuries, or AAA rated corporate bonds. But bonds issued by these A rated banks yield up to 4% for 3-5 years. Thoughts?

[GrayHare]

I've purchased some. Too big to fail.

[ScaredtoQuit]

I'm looking at them too. In my opinion they are NOT too big to fail. (after Lehman) However, I feel the ratings are a little more accurate than they were 5 years ago. These companies have solid balance sheets and good earnings. Overall, a rating of single A is pretty good. The reason they are paying as much as they are is because of the uncertainty of the litigation surrounding these companies. My consolation is that time and time again I've seen potentially bankrupt level litigation settling for very reasonable amounts. (Anybody remember the tobacco company settlements?)

Yes, I will probably invest in either Goldman or Morgan Stanley (or both) in the near future, however, I will hold my aggregate exposure to about 1-1/2 to 2% of my portfolio.

[pb4uski]

Having done some research on bond yields a couple of weeks ago as I was re-doing my bond allocation, it was striking that the yields on corporate bonds by financial issuers were significantly higher than similarly rated industrial issuers. There seems to be some disconnect between the risk of those issuers in the eyes of the bond market compared to the rating agencies. I thought the disparity was interesting though.

For those who have regularly invested in corporate bonds in the past, is this disparity normal or a more recent phenomenon?

[obgyn65]

I stick with CDs, and munis mainly.

[pb4uski]

Just after my prior post I noticed an article in today's WSJ where Moody's is allegedly considering some significant downgrades to some banks: 3 notch downgrade to Morgan Stanley, 2 notches for Citigroup, J.P. Morgan Chase and Goldman Sachs and one notch for BoA.

Seems to me a bit ridiculous in that the banks are stronger than before so it seems that Moody's has been asleep at the switch if they are considering multiple notch downgrades today.