Big mystery: Morgan Stanley's CDS and stock prices

April 6, 2009 | By Jim Kim

Morgan Stanley's shares have staged an impressive rally as of late. It's up about 50 percent and some think it may rise more. Bloomberg astutely asks: If the prognosis is so rosy, why are Morgan Stanley's credit default swap prices still high? Reconciling CDS spreads and stock prices is one of those areas where research units ought to be paying attention. In this case, it's a bit of a mystery.

One could argue that the stock run-up may represent some short covering and a lot of speculative froth. One could argue that the high CDS prices are actually moderate when compared to price levels around October. We may see CDS spreads slowly narrow as the threat of outright bankruptcy recedes even more. As for the stock run-up, some have wondered if Morgan Stanley and Goldman Sachs are planning stock offerings.

For more:
- here's the Bloomberg article