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Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 6 of 10 improved / 1 of 10 worsened / 3 of 10 unchanged
  • Intermediate-term (MoM): Negative / 0 of 10 improved / 7 of 10 worsened / 3 of 10 unchanged
  • Long-term (150 DMA): Negative / 0 of 10 improved / 6 of 10 worsened / 3 of 10 unchanged / 1 of 10 n/a

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - summary

1. US Financials CDS Monitor – Swaps tightened across domestic financials last week, widening for just 3 of the 28 reference entities and tightening for the other 25.

Tightened the most vs last week: PRU, MBI, AGO

Widened the most vs last week: XL, AON, MMC

Tightened the most vs last month/widened the least: SLM, PMI, JPM

Widened the most vs last month: CB, TRV, MBI

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - us cds

2. European Financials CDS Monitor – In Europe, banks swaps tightened significantly following the Irish bailout.  Swaps tightened for 37 of the 39 reference entities.

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - euro cds

3. Sovereign CDS – Sovereign CDS fell 39 bps on average last week, as swaps responded favorably to the bailout.

 

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - sov cds

4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, closing at 8.23 on Friday.  

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - high yield

5. Leveraged Loan Index Monitor – After sinking since early November, the Leveraged Loan Index reversed course and rose 1.3 points versus last week.   

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - Lev loan

6. TED Spread Monitor – The TED spread increased sharply into the end of the week, rising 3 points by Friday to close at 17.2.

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - TED spread

7. Journal of Commerce Commodity Price Index – Last week, the index rose 7.5 points, closing at 21.9 on Friday.

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - JOC

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell, ending the week 21 bps below last week’s close.

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - greek bonds

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 closed the week at 173 bps, 8 bps lower than last week.     

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - 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 was close to flat, falling 0.2 points at 217.  

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - Baltic Dry

11. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.33% upside to TRADE resistance, 2.2% downside to TRADE support. This implies 6 to 1 downside to upside ratio near-term. We generally look to see 2 to 1 upside/downside ratios to be long and 2 to 1 downside ratios to be short.

WEEKLY FINANCIALS RISK MONITOR: NOW POSITIVE ON A SHORT-TERM BASIS - XLF

Joshua Steiner, CFA

Allison Kaptur