WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 8 of 10 improved / 1 out of 10 worsened / 2 of 10 unchanged
  • Intermediate-term (MoM): Neutral / 5 of 10 improved / 5 of 10 worsened / 2 of 10 unchanged
  • Long-term (150 DMA): Neutral / 3 of 10 improved / 3 of 10 worsened / 4 of 10 unchanged / 1 of 10 n/a

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - summary

 

1. US Financials CDS Monitor – Swaps were positive across domestic financials, tightening for 27 of the 28 reference entities and widening for only one. 

Widened the most/tightened the least vs last week: AXP, AIG, HIG

Tightened the most vs last week: MET, TRV, MBI

Widened the most vs last month: C, AXP, ACE

Tightened the most vs last month: LNC, MET, MBI

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 1 US cds

 

2. European Financials CDS Monitor – After backing up sharply last week, banks swaps in Europe was mixed.  Swaps tightened for 24 of the 39 reference entities.

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 2 euro cds

 

3. Sovereign CDS – Sovereign CDS fell sharply last week on the Portuguese bailout and entry of Japanese buyers before rising slightly on Monday. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 3 sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell 9 bps last week, closing at 7.91 on Friday.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 3 high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index continued to charge higher, closing at 1598, 8 points higher than the previous week.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 4 lev loan

 

6. TED Spread Monitor – The TED spread fell to 15.8 from 16.8 the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 5 ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index rose 3.7 points, closing at 35.5 on Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 7 JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell 150 points.

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 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 fell last week, dropping 7 bps to 219.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 8 mcdx

 

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 144 amid Australian flooding. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 9 baltic dry

 

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 RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - 10 2 10 spread

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: zero upside to TRADE resistance, 2.0% downside to TRADE support. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: WIDELY POSITIVE ON A SHORT-TERM BASIS - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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