WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING

This week's notable callouts include European bank and sovereign swaps tightening and the 2-10 spread tightening.  


Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Neutral/ 4 of 11 improved / 4 out of 11 worsened / 3 of 11 unchanged
  • Intermediate-term (MoM): Negative/ 3 of 11 improved / 5 of 11 worsened / 3 of 11 unchanged
  • Long-term (150 DMA): Positive / 5 of 11 improved / 4 of 11 worsened / 2 of 11 unchanged

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - summary

 

1. US Financials CDS Monitor – Swaps were mixed across domestic financials, widening for 16 of the 28 reference entities and tightening for 12. 

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

Widened the most vs last week: RDN, PRU, HIG

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

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

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - us cds

 

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

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - euro cds

 

3. Sovereign CDS – Sovereign CDS tightened across Europe, falling 33 bps on average last week as Greece backed off its highs. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, ending at 7.81, 2 bps higher than the previous week.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index fell last week to end the week at 1599.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - lev loan

 

6. TED Spread Monitor – The TED spread hit the highest level since last August, ending the week at 23.7 versus 23.2 the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the JOC index hit its lowest level since January, the rose to end the week 1 point down from its prior level at 27.5.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell 52 bps.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - 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 131 on Friday.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - 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: SPREADS TIGHTENING - 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: SPREADS TIGHTENING - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows:  2.1% upside to TRADE resistance, 3.0% downside to TRADE support.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SPREADS TIGHTENING - xlf

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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