Financial Risk Monitor Summary (Across 3 Durations):
- Short-term (WoW): Positive / 4 of 10 improved / 3 out of 10 worsened / 3 of 10 unchanged
- Intermediate-term (MoM): Neutral / 4 of 10 improved / 4 of 10 worsened / 2 of 10 unchanged
- Long-term (150 DMA): Negative / 2 of 10 improved / 3 of 10 worsened / 4 of 10 unchanged / 1 of 10 n/a
1. US Financials CDS Monitor – Swaps were mixed across domestic financials, tightening early in the week and then widening into the end of the week. Swaps tightened for 16 of the 28 reference entities and widened for the other 12. Bank of America saw tightening on the back of its settlement with the GSEs early in the week, while all the moneycenter swaps backed up on the news of the Massachusetts Supreme Court foreclosure ruling.
Widened the most vs last week: WFC, C, GS
Tightened the most vs last week: LNC, MET, AON
Widened the most vs last month: CB, TRV, AGO
Tightened the most vs last month: SLM, MET, PRU
2. European Financials CDS Monitor – In Europe, banks swaps flashed a warning signal. Swaps widened for 34 of the 39 reference entities. German bank swaps widened an average of 22%, Spanish bank swaps widened an average of 17%, and Belgium’s KBC Group N.V. saw swaps widen more than 40%.
3. Sovereign CDS – Sovereign CDS rose 21 bps on average versus last week amid growing fears of contagion. Portuguese and Irish swaps saw the largest increase.
4. High Yield (YTM) Monitor – High Yield rates fell 33 bps last week, closing at 8.00 on Friday.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index continued to charge higher, closing at 1590, 17 points higher than the previous week.
6. TED Spread Monitor – The TED spread fell to 16.8 from 18.4 the prior week.
7. Journal of Commerce Commodity Price Index – Last week, the index rose 4.5 points, closing at 31.8 on Thursday.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose 14 bps to a new high of 1261.
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 into week end, rising 17 bps to 226.
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. The index fell to a new low of 177 amid Australian flooding.
11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins. Last week the 2-10 spread held flat at 273 bps.
12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 2.1% upside to TRADE resistance, 2.6% downside to TRADE support.
Joshua Steiner, CFA