WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT

This week's notable callouts include swaps widening across US and European financials and European sovereigns, while the TED spread widened to the highest level since August.  On the positive side, US Municipal swaps hit a new low.  


Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 2 of 10 improved / 6 out of 10 worsened / 3 of 10 unchanged
  • Intermediate-term (MoM): Negative / 3 of 10 improved / 5 of 10 worsened / 3 of 10 unchanged
  • Long-term (150 DMA): Positive / 5 of 10 improved / 4 of 10 worsened / 2 of 10 unchanged

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - summary

1. US Financials CDS Monitor – Swaps were mostly wider across domestic financials, widening for 21 of the 28 reference entities and tightening for 7. 

Tightened the most vs last week: WFC, UNM, MMC

Widened the most vs last week: MET, XL, AIG

Tightened the most vs last month: COF, UNM, MMC

Widened the most vs last month: MET, XL, HIG

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - US CDS

2. European Financials CDS Monitor – Banks swaps in Europe were mostly wider, widening for 32 of the 39 reference entities and tightening for 7.

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - european CDS

3. Sovereign CDS – Sovereign CDS widened across Europe, rising 23 bps on average last week as Greece approached a new YTD high. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - sov cds

4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, ending at 7.79, 3 bps lower than the previous week.  

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - high yield

5. Leveraged Loan Index Monitor – The Leveraged Loan Index fell every day last week to end the week at 1605. 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - lev loan

6. TED Spread Monitor – The TED spread hit the highest level since last August, ending the week at 23.2 versus 19.2 the prior week.

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - ted

7. Journal of Commerce Commodity Price Index – Last week, the JOC index hit a high and then backed off sharply, falling 6.5 points to end the week at 28.6.

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - JOC

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 56 bps.

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - 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 140 on Friday after hitting a new low intraweek.

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - 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.  Early in the year, Australian floods and oversupply pressured the Index, driving it down 30%. Since then it has bounced off the lows and is now steadily climbing.  Last week it rose 216 points to 1346. 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - Baltic dry

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread tightened slightly to 276 bps. 

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - 2 10

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows:  1.3% upside to TRADE resistance, 1.6% downside to TRADE support.

WEEKLY RISK MONITOR FOR FINANCIALS: TED SPREAD AND SWAPS WIDEN OUT - XLF

Joshua Steiner, CFA

Allison Kaptur