Financial Risk Monitor Summary (Across 3 Durations):
- Short-term (WoW): Neutral / 2 of 10 improved / 2 out of 10 worsened / 7 of 10 unchanged
- Intermediate-term (MoM): Positive / 7 of 10 improved / 1 of 10 worsened / 3 of 10 unchanged
- Long-term (150 DMA): Positive / 4 of 10 improved / 3 of 10 worsened / 3 of 10 unchanged / 1 of 10 n/a
1. US Financials CDS Monitor – Swaps were mixed across domestic financials, tightening for 17 of the 28 reference entities and widening for 11.
Widened the most vs last week: MTG, MBI, AGO
Tightened the most vs last week: CB, XL, AIG
Widened the most vs last month: MTG, PMI, RDN
Tightened the most vs last month: LNC, MET, HIG
2. European Financials CDS Monitor – Banks swaps in Europe were also mixed, tightening for 19 of the 39 reference entities and widening for 20.
3. Sovereign CDS – Sovereign CDS rose 14 bps on average last week, reversing their sharp decline of the last several weeks.
4. High Yield (YTM) Monitor – High Yield rates held close to flat last week, closing at 7.93 on Friday.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index showed no sign of slowing its ascent, closing at 1612, 8 points higher than the previous week.
6. TED Spread Monitor – The TED spread rose slightly last week, ending the week at 16.4 versus 15.3 the prior week.
7. Journal of Commerce Commodity Price Index – Last week, the index held flat, closing at 33.2 on Friday.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose 16 bps.
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 early in the week before rebounding somewhat to close at 193, 5 bps below the previous Friday’s close.
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. While Australian floods and oversupply have been pressuring the Index, it has fallen 33% so far this year and is down 60% from its most recent peak.
11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins. Last week the 2-10 spread narrowed just slightly to 278 bps.
12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 1% upside to TRADE resistance, 0.4% downside to TRADE support.
Joshua Steiner, CFA