Our risk monitor this morning is topical and timely as the European situation continues to push spreads out further. While our charts below reflect week over week changes through Friday's close, as of this morning the TED Spread has widened further to 36 bps. While still significantly below crisis levels, it's the trajectory that matters and the trajectory has been moving steadily higher for the last few weeks. As long as this measure is rising, we think it is unlikely that Financials will outperform, notwithstanding a short-term snap-back rally.
Overall, 6 of the 8 measures registered negative readings on a week-over-week basis, while 2 were positive.
Our risk monitor looks at the following metrics weekly:
1. CDS for all available US Financials (30 companies).
2. High Yield
3. Leveraged Loans
4. TED Spread
6. Greek Bond Spreads
7. Markit Subprime Spreads
8. AAII Bulls/Bears Sentiment Survey
1. Financials CDS Monitor - Credit default swaps in Financial companies were worse across the board last week with the largest widening coming from AGO, AIG, and GNW. The smallest increase week over week was at TRV, AON, and MMC. Swap prices remain considerably elevated compared to a month ago, with the most widening at AIG, GNW, and HIG. Conclusion: Negative.
- Widened the least vs last week: TRV, AON, MMC
- Widened the most vs last week: AGO, AIG, GNW
- Widened the least vs last month: BAC, C, PGR
- Widened the most vs last month: AIG, GNW, HIG
Joshua Steiner, CFA