Financial Risk Monitor Summary (Across 3 Durations):
- Short-term (WoW): Negative / 1 of 10 improved / 5 out of 10 worsened / 5 of 10 unchanged
- Intermediate-term (MoM): Negative / 3 of 10 improved / 4 of 10 worsened / 4 of 10 unchanged
- Long-term (150 DMA): Negative / 1 of 10 improved / 5 of 10 worsened / 4 of 10 unchanged / 1 of 10 n/a
1. US Financials CDS Monitor – Swaps were mostly negative across domestic financials last week, widening for 20 of the 28 reference entities and tightening for the other 8.
Tightened the most vs last week: SLM, MET, PRU
Widened the most vs last week: TRV, MBI, AGO
Tightened the most vs last month: SLM, MET, PRU
Widened the most vs last month: ACE, CB, TRV
2. European Financials CDS Monitor – In Europe, banks swaps were almost universally worse. Swaps widened for 38 of the 39 reference entities.
3. Sovereign CDS – Sovereign CDS widened out by 26 bps week over week with the greatest widening occurring in Italy (30 bps wider).
4. High Yield (YTM) Monitor – High Yield rates fell very slightly last week, closing at 8.36 on Thursday.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index hit another new high, rising 4 points to close at 1568.
6. TED Spread Monitor – The TED spread fell back to 17.1.
7. Journal of Commerce Commodity Price Index – Last week, the index rose half a point, closing at 26.4 on Thursday.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose sharply, ending the week 28 bps above a week ago and just 10 bps off of their crisis-level highs in May.
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 last week, closing at 208 bps, 10 bps higher than a week prior.
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 23 points to close at 177, bringing the index to its lowest level since July.
11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins. Last week the 2-10 spread tightened 7.5 bps, falling to 274 bps.
12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.9% upside to TRADE resistance, 1.4% downside to TRADE support.
Joshua Steiner, CFA