Bonds Signal Deutsche Bank-Commerzbank Tie Up Looks Less Likely

(Bloomberg) -- A merger between Deutsche Bank AG and Commerzbank AG is far from certain, if credit markets are to be believed.

The cost of insuring the debt of Germany’s two largest private-sector lenders against default is diverging and currently stands at the furthest apart in around two months, according to data compiled by Bloomberg. That means investors are not convinced they can be treated as a single entity in terms of risk.

Deutsche Bank is about double the size of crosstown rival Commerzbank AG, but is considered riskier, with credit ratings that are about two steps lower. Nevertheless, bond yields are also drifting apart. Deutsche Bank is said to be working on an alternative strategy in case merger talks collapse.

Read More: Deutsche Bank Said to Prepare Plan B If Takeover Talks Fail

“The spread between Deutsche Bank and Commerzbank bonds is a proxy of merger probability and at the moment, the market doesn’t think it’s a done deal,” said Tom Kinmonth, an analyst at ABN Amro in Amsterdam. “If a merger doesn’t materialize, Deutsche bonds could go wider.”

©2019 Bloomberg L.P.