WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE

This week's notable callouts include Greek bond yields and CDS continuing their sharpest move since the crisis last spring.

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 1 of 11 improved / 4 out of 11 worsened / 5 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

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - summary

 

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

Tightened the most vs last week: TRV, MBI, AGO

Widened the most vs last week: PMI, MTG, RDN

Tightened the most vs last month: ACE, XL, AGO

Widened the most vs last month: PMI, MTG, RDN

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - us cds

 

2. European Financials CDS Monitor – Banks swaps in Europe were mixed to widened, widening for 25 of the 39 reference entities and tightening for 14.

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - euro cds

 

3. European Sovereign CDS – Sovereign CDS continued to rise sharply across Europe as Greek CDS hit another all-time high, up 18% WoW.

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, ending at 7.78, roughly 1 bps lower than the previous week.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index fell very slightly last week to end the week at 1620.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - lev loan

 

6. TED Spread Monitor – The TED spread rose last week, ending the week at 22.3 versus 21.4 the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the JOC index fell to end the week at 32.1, 2.9 points lower than the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields ripped 107 bps after jumping 93 bps the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - 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.  Last week spreads fell to 118. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - markit

 

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 1254. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - baltic dry

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread widened 3 bps to 274 bps. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows:  0.4% upside to the bottom of the TRADE range, 1.8% downside to TREND support.

 

WEEKLY RISK MONITOR FOR FINANCIALS: EUROPEAN RISK CONTINUES TO DOMINATE - LF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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