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

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - summary

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

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - us swaps

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%. 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - euro swaps

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. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - sov swaps

4. High Yield (YTM) Monitor – High Yield rates fell 33 bps last week, closing at 8.00 on Friday.  

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - high yield

5. Leveraged Loan Index Monitor – The Leveraged Loan Index continued to charge higher, closing at 1590, 17 points higher than the previous week.   

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - lev loan index

6. TED Spread Monitor – The TED spread fell to 16.8 from 18.4 the prior week.

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - ted

7. Journal of Commerce Commodity Price Index – Last week, the index rose 4.5 points, closing at 31.8 on Thursday.

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - JOC

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.

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - 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 into week end, rising 17 bps to 226.  

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - 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.  The index fell to a new low of 177 amid Australian flooding. 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - baltic dry index

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. 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - 2 10

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. 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - XLF

Joshua Steiner, CFA

Allison Kaptur