MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF

Takeaway: The high yield carnage continues while commodities catch a momentary reprieve.

 

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM11

 

Key Takeaway:

The sole takeaway from last week was the ongoing deterioration in the high yield markets. YTM widened another +37 bps on the week, pushing yields to 9.09%. That brings the M/M change to +115 bps.

 

Our heatmap below is decidely negative across all durations.


Current Ideas:


MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Negative / 2 of 12 improved / 5 out of 12 worsened / 5 of 12 unchanged
• Intermediate-term(WoW): Negative / 3 of 12 improved / 7 out of 12 worsened / 2 of 12 unchanged
• Long-term(WoW): Negative / 1 of 12 improved / 3 out of 12 worsened / 8 of 12 unchanged

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM15

 

 

1. U.S. Financial CDS – Swaps were generally tighter among US Financials on the week with the median spread falling from 56 bps to 54.

Tightened the most WoW: COF, MMC, ACE
Widened the most/ tightened the least WoW: ALL, SLM, SLM
Tightened the most WoW: ACE, AIG, MMC
Widened the most/ tightened the least MoM: COF, SLM, SLM

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM1

 

2. European Financial CDS – Swaps were little changed among European banks last week.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM2

 

3. Asian Financial CDS – Swaps mostly widened among Asian banks last week with the Export-Import Bank of China and the State Bank of India leading the way, the former widening by 7 bps to 127, the latter by 7 bps to 166.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM17

 

4. Sovereign CDS – Sovereign swaps were flat to wider over last week. Spanish sovereign swaps showed the most movement, widening by 5 bps to 91.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM18

 

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM3

 

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps mostly tightened last week. Indonesian swaps tightened the most, by -5 bps to 235.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM16

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM20

6. High Yield (YTM) Monitor – High Yield rates rose 37 bps last week, ending the week at 9.09% versus 8.72% the prior week.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index rose 4 points last week, ending at 1800.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM6

8. TED Spread Monitor  – The TED spread fell 1 basis point last week, ending the week at 40 bps this week versus last week’s print of 41 bps.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM7

9. CRB Commodity Price Index – The CRB index rose 2.5%, ending the week at 176 versus 172 the prior week. As compared with the prior month, commodity prices have decreased -3.9%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 11 bps.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index rose 12 basis points last week, ending the week at 1.93% versus last week’s print of 1.82%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM10

12. Chinese Steel – Steel prices in China rose 1.6% last week, or 31 yuan/ton, to 1958 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM12

13. 2-10 Spread – Last week the 2-10 spread tightened to 124 bps, -1 bp tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | HIGH YIELD CONTINUES ITS SELL OFF - RM13



Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more