Last week, 2 of the 8 risk measures registered positive readings on a week-over-week basis, while 4 were neutral and two were negative - a pretty balanced reading suggesting the jury is still out on whether concerns around Europe are subsiding or simply pausing before their next move. That said, last week 6 of 8 measures recorded worse readings sequentially, suggesting that this week's leveling out may be a positive on the margin from a second derivative standpoint.
One caveat is that our interpretation of the AAII Bulls/Bears survey is that a more bearish reading is bearish. Most market observers would use this survey as a contrarian indicator, which we wouldn't disagree with from a practitioner standpoint. However, for the purposes of this risk monitor, we treat an increase in bearish sentiment as a negative.
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 mixed last week, a week of respite following major hikes over the last few weeks. The largest decreases week over week were AGO, C, GS, and COF. Swap prices remain considerably elevated compared to a month ago, with the most widening at XL, ABK, GNW, and HIG. Conclusion: Neutral.
- Widened the least vs last week: GS, C, COF, AGO
- Widened the most vs last week: XL, ABK, BBVA-ES, POP-ES
- Widened the least vs last month: C, GS, SAB-ES, POP-ES
- Widened the most vs last month: XL, ABK, GNW, HIG
Joshua Steiner, CFA