European banks and sovereign CDS widened significantly last week, while US banks and municipal swaps saw spreads decline as investors sought yield in the wake of QE 2.
Financial Risk Monitor Summary (Across 3 Durations):
- Short-term (WoW): Negative / 3 of 10 improved / 4 of 10 worsened / 3 of 10 unchanged
- Intermediate-term (MoM): Positive / 3 of 10 improved / 4 of 10 worsened / 3 of 10 unchanged
- Long-term (150 DMA): Negative / 7 of 10 worsened / 1 of 10 improved / 1 of 10 unchanged / 1 of 10 n/a
1. US Financials CDS Monitor – Swaps were positive last week, tightening for all 29 reference entities.
Tightened the most vs last week: AXP, ACE, CB
Tightened the least vs last week: PGR, XL, MMC
Tightened the most vs last month: ACE, BC, TRV
Widened the most vs last month: JPM, COF, PGR
2. European Financials CDS Monitor – In Europe, banks swaps diverged sharply from their U.S. counterparts. Swaps widened for 33 of the 39 reference entities and tightened for only 6.
3. Sovereign CDS – Sovereign CDS increased 50 bps on average last week as Greece, Ireland and Portugal continued to surge higher.
4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, closing at 7.82 on Friday.
5. Leveraged Loan Index Monitor – The leveraged loan index rose 11 points last week, closing at another new YTD high.
6. TED Spread Monitor – Last week the TED spread fell slightly, closing at 17.1 bps.
7. Journal of Commerce Commodity Price Index – Last week, the index rose 5.2 points, closing at 21.7.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose 90 bps week over week.
9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices. Spreads fell to their lowest level for at least four months, closing at 157.
10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production. Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion. Last week the index fell 18 points, closing at 250 versus 268 the prior week.
Joshua Steiner, CFA