Financial Risk Monitor Summary (Across 3 Durations):
- Short-term (WoW): Positive / 2 of 10 improved / 5 out of 10 worsened / 3 of 10 unchanged
- Intermediate-term (MoM): Negative / 0 of 10 improved / 6 of 10 worsened / 4 of 10 unchanged
- Long-term (150 DMA): Negative / 1 of 10 improved / 5 of 10 worsened / 3 of 10 unchanged / 1 of 10 n/a
1. US Financials CDS Monitor – Swaps continued to tighten across domestic financials last week, widening for just 5 of the 28 reference entities and tightening for the other 23.
Tightened the most vs last week: C, SLM, PRU
Widened the most vs last week: ALL, CB, TRV
Tightened the most vs last month: JPM, C, PRU
Widened the most vs last month: CB, TRV, MBI
2. European Financials CDS Monitor – In Europe, banks swaps reversed course and widened out. Swaps widened for 32 of the 39 reference entities.
3. Sovereign CDS – Sovereign CDS rose 27 bps on average last week.
4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, closing at 8.31 on Friday.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index came close to new highs, closing at 1556.
6. TED Spread Monitor – The TED spread backed up on Friday to close the week at 18.5.
7. Journal of Commerce Commodity Price Index – Last week, the index rose 3.8 points, closing at 25.7 on Friday.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose slightly, ending the week 12 bps above the prior week’s close.
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 increased sharply last week, closing at 208 bps, 35 bps higher than last week.
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 7.3 points to close at 209.5.
11. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 1.2% upside to TRADE resistance, 3.6% downside to TRADE support. Typically, when downside to upside is greater than 2:1, we believe caution is warranted.
Joshua Steiner, CFA