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    MARKET EDGES

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This week's notable callouts include US municipal swaps tightening significantly, while European Sovereign swaps widened once again.

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 3 of 10 improved / 6 out of 10 worsened / 2 of 10 unchanged
  • Intermediate-term (MoM): Positive / 4 of 10 improved / 2 of 10 worsened / 5 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

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - summary

1. US Financials CDS Monitor – Swaps were mostly tighter across domestic financials, tightening for 20 of the 28 reference entities and widening for 8. 

Tightened the most vs last week: MTG, XL, MBI

Widened the most vs last week: AXP, MET, ALL

Tightened the most vs last month: JPM, BAC, WFC

Widened the most vs last month: MTG, PMI, RDN

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - us cds

2. European Financials CDS Monitor – Banks swaps in Europe were mixed, widening for 20 of the 39 reference entities and tightening for 19.

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - euro cds

3. Sovereign CDS – Sovereign CDS rose across Europe, climbing 25 bps on average last week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - sov cds

4. High Yield (YTM) Monitor – High Yield rates fell early in the week before backing up on Friday to close at 7.84, 1 bps lower than the previous week.  

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - high yield

5. Leveraged Loan Index Monitor – The Leveraged Loan Index continued to ascend, closing at 1619, 3 points higher than the previous week.   

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - lev loan

6. TED Spread Monitor – The TED spread backed up last week, ending the week at 17.8 versus 15.9 the prior week.

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - ted spread

7. Journal of Commerce Commodity Price Index – Last week, the index fell 1.5 points, closing at 34.7 on Friday.

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 57 bps in a steady trend, erasing the prior week’s improvement.

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - 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, closing at 169 on Friday, the lowest level since last November.  

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - 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.  With Australian floods and oversupply pressuring the Index, it has fallen 30% so far this year and is down 60% from its most recent peak. Last week the Index had its first up week in months, rising 135 to 1178. 

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - bdi

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread tightened 10 bps to 279 bps. 

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - 2 10

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.2% upside to TRADE resistance, -1.6% downside to TRADE support. 

WEEKLY RISK MONITOR FOR FINANCIALS: MUNI SWAPS TIGHTEN WHILE SOVEREIGN SWAPS WIDEN - XLF

Joshua Steiner, CFA

Allison Kaptur