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    MARKET EDGES

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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

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - summary

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

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - us cds

 

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.    

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - euro cds

3. Sovereign CDS – Sovereign CDS increased 50 bps on average last week as Greece, Ireland and Portugal continued to surge higher.   

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - sov cds

4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, closing at 7.82 on Friday.  

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - high yield

5. Leveraged Loan Index Monitor – The leveraged loan index rose 11 points last week, closing at another new YTD high. 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - leveraged loan

6. TED Spread Monitor – Last week the TED spread fell slightly, closing at 17.1 bps.

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - ted spread

7. Journal of Commerce Commodity Price Index – Last week, the index rose 5.2 points, closing at 21.7.

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - joc

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 90 bps week over week.

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - greek bond

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.     

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - mcdx

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.  

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - baltic

Joshua Steiner, CFA

Allison Kaptur