Wall Street Credit Costs Soar on Spread to U.S. Rates

Bloomberg reports:

Wall Street is getting no benefit from the biggest bond market rally in five years.

Lehman Brothers Holdings Inc. faces higher borrowing costs today than it did in June, even after the steepest quarterly drop in U.S. Treasury yields since 2002 pushed interest rates down for everyone from Procter & Gamble Co. to AT&T Inc. Investors are so leery of Bear Stearns Cos. that its 10-year bonds trade at a discount to Colombia, the South American nation that's barely investment grade. Goldman Sachs Group Inc. is being punished with a higher yield than Caterpillar Inc., the heavy-equipment maker.

Bond buyers view the nation's largest securities firms as no safer than taking a flier on subprime mortgages. That's a nightmare scenario for the industry's chief executive officers, who relied on cheap financing for leveraged buyouts, real estate lending and proprietary trading to produce record profits -- and paychecks of $40 million or more for themselves.

``There are so many unknowns, the doubt component is causing the rise in yields,'' said William Larkin, a fixed-income portfolio manager at Cabot Money Management in Salem, Massachusetts. ``It's crazy when you think about it, Lehman versus the country of Colombia.''

You might say that the spread between U.S. Treasuries and other securities is widening.The Fed can't change risk.Something to think about.