This week's notable callouts include Greek bond yields and CDS making their sharpest move since the crisis last spring. Also, US Mortgage Insurance swaps widened out meaningfully week over week.
Financial Risk Monitor Summary (Across 3 Durations):
- Short-term (WoW): Negative / 3 of 11 improved / 6 out of 11 worsened / 2 of 11 unchanged
- Intermediate-term (MoM): Positive / 4 of 11 improved / 3 of 11 worsened / 4 of 11 unchanged
- Long-term (150 DMA): Neutral / 4 of 11 improved / 4 of 11 worsened / 3 of 11 unchanged
1. US Financials CDS Monitor – Swaps were mostly wider across domestic financials, widening for 19 of the 28 reference entities and tightening for 9.
Tightened the most vs last week: TRV, MBI, AGO
Widened the most vs last week: PMI, MTG, RDN
Tightened the most vs last month: MET, XL, AGO
Widened the most vs last month: PMI, MTG, RDN
2. European Financials CDS Monitor – Banks swaps in Europe were wider, widening for 34 of the 39 reference entities and tightening for 5.
3. European Sovereign CDS – Sovereign CDS rose sharply across Europe as Greek CDS ripped 20% to a new all-time high. Please note that we have changed data providers for sovereign CDS data, which has the effect of slightly restating the historical levels. Our Europe analyst, Matt Hedrick, writes, “The risk premium placed on Greece this AM (via sovereign CDS and yields), which had been building over the last week, is a reflection of the collision between the Germans saying the Greeks need to restructure their debt and the Greeks denying or deeply tempering the claim. It’s clear which side the market is taking. Greek equities are down along with most of Europe today, -1.1%.”
4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, ending at 7.77, 5 bps lower than the previous week.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose slightly last week to end the week at 1621.
6. TED Spread Monitor – The TED spread fell last week, ending the week at 21.4 versus 24.0 the prior week.
7. Journal of Commerce Commodity Price Index – Last week, the JOC index fell to end the week at 33.9, 3.6 points lower than the prior week.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields ripped 97 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. Last week spreads fell to 118.
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% before bouncing off the lows. Last week it hit its lowest level since early March, falling to 1296.
11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins. Last week the 2-10 spread tightened 6 bps to 271 bps.
Joshua Steiner, CFA