This week's notable callouts:
- Greek sovereign yields, Greek sovereign CDS and Greek bank swaps increased sharply. According to our Europe analyst, Matt Hedrick, "Last week, more attention was given to the growing “I don’t pay” movement in which more and more Greeks are refusing to pay for road tolls, bus tickets, and other public charges. There is rising uncertainty from Germany and France if they’ll support lowering the interest rate on bailout loans ahead of EU Summit March 24-5. Today Moody’s downgraded Greece credit rating by three steps on rising default risk (Ba1 to B1)."
- Municipal swaps hit a new low
- The Leveraged Loan Index remains in a downtrend
Financial Risk Monitor Summary (Across 3 Durations):
- Short-term (WoW): Positive / 4 of 10 improved / 3 out of 10 worsened / 4 of 10 unchanged
- Intermediate-term (MoM): Negative / 3 of 10 improved / 4 of 10 worsened / 4 of 10 unchanged
- Long-term (150 DMA): Positive / 5 of 10 improved / 4 of 10 worsened / 2 of 10 unchanged
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: JPM, C, COF
Widened the most vs last week: AXP, PMI, GNW
Tightened the most vs last month: COF, MTG, MBI
Widened the most vs last month: MET, PRU, HIG
2. European Financials CDS Monitor – Banks swaps in Europe were mostly tighter, except in Greece, tightening for 31 of the 39 reference entities and widening for 8.
3. Sovereign CDS – Sovereign CDS were mixed across Europe, falling 3 bps on average last week. Widening was concentrated in Greek and Portuguese CDS, while Spanish and Irish quotes were somewhat tighter.
4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, ending at 7.82, 1 bps lower than the previous week.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index has been falling since early February, ending the week at 1612.
6. TED Spread Monitor – The TED spread backed up last week, ending the week at 19.2 versus 17.6 the prior week.
7. Journal of Commerce Commodity Price Index – Last week, the index held rose slightly, climbing to 35.1 on Friday.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose 37 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 last week, closing at 148 on Friday, a new low.
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, the series fell 30% early in the year. Since then it has bounced off the lows. Last week it rose 101 points to 1346.
11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins. Last week the 2-10 spread widened to 280 bps.
12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows.
Joshua Steiner, CFA