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
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
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.
3. Sovereign CDS – Sovereign CDS fell sharply last week on the Portuguese bailout and entry of Japanese buyers before rising slightly on Monday.
4. High Yield (YTM) Monitor – High Yield rates fell 9 bps last week, closing at 7.91 on Friday.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index continued to charge higher, closing at 1598, 8 points higher than the previous week.
6. TED Spread Monitor – The TED spread fell to 15.8 from 16.8 the prior week.
7. Journal of Commerce Commodity Price Index – Last week, the index rose 3.7 points, closing at 35.5 on Friday.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields fell 150 points.
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.
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.
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: zero upside to TRADE resistance, 2.0% downside to TRADE support.
Joshua Steiner, CFA
Allison Kaptur