WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE

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 / 5 of 11 improved / 2 out of 11 worsened / 4 of 11 unchanged
  • Intermediate-term (MoM): Neutral / 4 of 11 improved / 4 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: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - summary


1. US Financials CDS Monitor – Swaps were mixed across domestic financials, widening for 13 of the 28 reference entities and tightening for 15. 

Tightened the most vs last week: BAC, C, MET

Widened the most vs last week: CB, MBI, GNW

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

Widened the most vs last month: ACE, XL, MBI

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - us cds

2. European Financials CDS Monitor – Banks swaps in Europe were mixed, tightening for 17 of the 39 reference entities and widening for 22.

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - euro cds

3. European Sovereign CDS – Sovereign CDS widened across Europe, particularly in Portugal, rising 21 bps on average last week. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - sov cds

4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, ending at 7.88, 7 bps higher than the previous week.  

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - high yield

5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose last week to end the week at 1605.   

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - lev loan

6. TED Spread Monitor – The TED spread fell from its highs last week, ending the week at 22.0 versus 23.7 the prior week.

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - ted spread

7. Journal of Commerce Commodity Price Index – Last week, the JOC index rose to end the week at 35.1, 7.6 points higher than the prior week.

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - JOC

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 29 bps.

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - greek bond

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.  As of Thursday, the most recent data available, spreads hit a new low of 121.8. 

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - 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.  Last week it rose slightly, climbing 54 points to 1585. 

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - baltic dryu

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread widened slightly to 270 bps. 

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - 2 10

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows:  0.9% upside to TRADE resistance, 0.8% downside to TREND support.

WEEKLY RISK MONITOR FOR FINANCIALS: MUNICIPAL SWAPS HIT NEW LOW AS EUROPEAN RISK METRICS RISE - XLF

Joshua Steiner, CFA

Allison Kaptur