MONDAY MORNING RISK MONITOR | SHORT TERM GAIN

Takeaway: Much of the data we track globally has been bouncing for the last few weeks. This doesn't change our increasingly bearish view of the setup.

 

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM11

 

Key Takeaway:

Last week's better than expected reading on non-farm payrolls coupled with the ongoing stabilization in oil has fueled an impressive relief rally. Our heatmap shows that CDS spread significantly tightened across the globe last week. Additionally, high yield YTM dropped 58 bps to 8.0%, and the Leveraged Loan index rose by 24 points.

 

While short-term readings have skewed positive over the last three weeks, intermediate and longer-term measures remain negative, on balance.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 8 of 13 improved / 3 out of 13 worsened / 2 of 13 unchanged
• Intermediate-term(WoW): Negative / 3 of 13 improved / 7 out of 13 worsened / 3 of 13 unchanged
• Long-term(WoW): Negative / 1 of 13 improved / 4 out of 13 worsened / 8 of 13 unchanged

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM15

 

1. U.S. Financial CDS – Swaps tightened for 12 out of 27 domestic financial institutions. With last week's better than expected reading on non-farm payrolls, domestic CDS tightened by an average 9 bps.

Tightened the most WoW: AIG, PRU, HIG
Widened the most WoW: AGO, TRV, MBI
Tightened the most WoW: AXP, JPM, C
Widened the most MoM: AIG, COF, MET

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM1

 

2. European Financial CDS – With positive economic data from the United States and the continued stabalization in oil, swaps mostly tightened in Europe last week .

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM2

 

3. Asian Financial CDS – Swaps tightened across the board in Asia last week. Japan's Sumitomo Mitsui tightened the most, by 24 bps to 131.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM17

 

4. Sovereign CDS – Sovereign Swaps mostly tightened over last week. Portuguese swaps tightened the most, by 57 bps to 268.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM18

 

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM3

 

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps tightened last week. Brazilian and Russian swaps tightened the most, by -40 bps to 416 and by -30 bps to 302 respectively.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM16

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM20

6. High Yield (YTM) Monitor – High Yield rates fell 58 bps last week, ending the week at 7.99% versus 8.56% the prior week.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index rose 24.0 points last week, ending at 1813.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM6

8. TED Spread Monitor  – The TED spread rose 5 basis points last week, ending the week at 37 bps this week versus last week’s print of 32 bps.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM7

9. CRB Commodity Price Index – The CRB index rose 4.4%, ending the week at 169 versus 161 the prior week. As compared with the prior month, commodity prices have increased 4.1%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - 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 14 bps.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index fell 10 basis points last week, ending the week at 1.95% versus last week’s print of 2.05%. 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 | SHORT TERM GAIN - RM10

12. Chinese Steel – Steel prices in China rose 2.2% last week, or 47 yuan/ton, to 2172 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 | SHORT TERM GAIN - RM12

13. 2-10 Spread – Last week the 2-10 spread widened to 101 bps, 4 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM13

14. CDOR-OIS Spread – The CDOR-OIS spread is the Canadian equivalent of the Euribor-OIS spread. It is the difference between the Canadian interbank lending rate and overnight indexed swaps, and it measures bank counterparty risk in Canada. The CDOR-OIS spread widened by 2 bps to 41 bps.

MONDAY MORNING RISK MONITOR | SHORT TERM GAIN - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


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