WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE

This week's notable callouts are the MCDX municipal swap index breaking to its lowest levels since last November (this is a positive reflection on Muni credit), and the TED spread backing off its prior week highs. Among US Financials, ALL, AON and MMC tightened the most week over week, while JPM, C and RDN widened the most.


Financial Risk Monitor Summary (Across 3 Durations):

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

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - summary

 

1. US Financials CDS Monitor – Swaps were mostly wider across domestic financials, tightening for just 1 of the 27 reference entities and widening for 26. 

Tightened the most vs last week: ALL, AON, MMC

Widened the most vs last week: JPM, C, RDN

Tightened the most vs last month: COF, MBI, AGO

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

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - US CDS

 

2. European Financials CDS Monitor – Banks swaps in Europe were mostly wider, tightening for 15 of the 39 reference entities and widening for 24.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - EURO CDS

 

3. Sovereign CDS – Sovereign CDS rose across Europe, climbing 11 bps on average last week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, ending at 7.83, 4 bps higher than the previous week.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index fell last week, ending the week at 1614, down from 1619.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - lev loans

 

6. TED Spread Monitor – The TED spread tightened last week, a reversal of the prior week's widening. It ended the week at 17.6 bps, down 3.5 bp week-over-week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index held close to flat, falling just under a point to 33 by Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - JOC Commodity

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 16 bps to 11.88%.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - greece

 

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 by 2.5 bps, closing at 154 bps on Friday, eclipsing their prior low from last November.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - markit 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 BDI ended the week at 1245, down 4.3% week-over-week. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - 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 tightened by 11 bps to 270 bps. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - 2 10 spread

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.8% upside to TRADE resistance, -0.5% downside to TRADE support. 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - xlf

 

Joshua Steiner, CFA

 

Allison Kaptur


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