WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION

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

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - summary table

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

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - us cds

2. European Financials CDS Monitor – In Europe, banks swaps were almost universally worse.  Swaps widened for 38 of the 39 reference entities.

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - euro cds

3. Sovereign CDS – Sovereign CDS widened out by 26 bps week over week with the greatest widening occurring in Italy (30 bps wider).

 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - sov cds

4. High Yield (YTM) Monitor – High Yield rates fell very slightly last week, closing at 8.36 on Thursday.  

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - high yield

5. Leveraged Loan Index Monitor – The Leveraged Loan Index hit another new high, rising 4 points to close at 1568.   

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - lev loan

6. TED Spread Monitor – The TED spread fell back to 17.1.

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - ted spread

7. Journal of Commerce Commodity Price Index – Last week, the index rose half a point, closing at 26.4 on Thursday.

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - JOC

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.

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - 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 increased last week, closing at 208 bps, 10 bps higher than a week prior.     

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - markit

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.    

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - baltic dry

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. 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - 2 10 spread

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. 

WEEKLY RISK MONITOR FOR FINANCIALS: ITALIAN SWAPS AND BALTIC DRY INDEX SIGNAL CAUTION - XLF

Joshua Steiner, CFA

Allison Kaptur