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Takeaway: This product tracks and measures changes in systemic risk in various Financial Systems around the world.

Editor's Note: Below is a complimentary research note written by Financials analysts Josh Steiner and Drago Malesevic. To access our institutional research please email sales@hedgeye.com.

With the return of a risk-off environment, we have relaunched our Risk Tracker to track key risk measures across the various banking systems around the world. 

Note, we plan to publish the RIsk Tracker on a dynamic basis, contingent with evolving conditions in markets, i.e. more frequently during periods of acute stress and less frequently in periods of relative calm.

HEDGEYE FINANCIALS RISK TRACKER

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - C1

Key Takeaways: 

  • The US TED Spread tacked on another +23 bps on top of Tuesday's level, bringing yesterday's reading to 110 bps, up +96 bps (+683%) from four weeks ago
  • CDOR-OIS added +5 bps of spread to Tuesday's level, bringing yesterday's reading to 108 bps, up +82 bps (+307%) from four weeks ago
  • Tuesday's High Yield OAS reading of 9.04% is up +58 bps from Tuesday 03/17 and up +560 bps (+163%) from four weeks ago
  • CDS spreads on US Moneycenter Banks continue to spike, highlighting Citibank as the greatest risk within the group
  • While the rest of Canadian Big 5 enjoyed greater stability, Bank of Montreal and Scotiabank notably saw CDS spreads jump meaningfully over their prior week levels, rising +66 bps (+100%) and +73 bps (+114%) to 131 bps and 136 bps as of 03/18, respectively
  • Among Asian financials, Indian banks have been repriced for the greatest risk, with CDS spreads on the State Bank of India and ICICI Bank rising +119 bps (+100%) and +127 bps (+116%) over their prior week levels to 238 bps and 237 bps as of 03/18, respectively

Our heatmap below is signalling rising risk across most measures on short and medium-term horizons. 

Summary

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - Summary


1. TED Spread – The TED spread widened by +73 bps (+192%) WoW to 110 bps as of 03/18. Month-over-month, the Ted spread widened by +96 bps (+683%).

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - Ted

2. Euribor-OIS Spread – The Euribor-OIS spread tightened by -2 bp (-18%) WoW to 10 bps as of  03/18. Month-over-month, the Euribor-OIS spread has widened +5 bps (+107%).

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. 

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - Eurois

3. Chinese Interbank Rate (Shifon Index) – The Shifon Index fell -116 bps (-55%) WoW to 0.96% as of 03/18. Month-over-month, the Shifon index has fallen -66 bps (-41%).

The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system. 

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - Shifon

4. CDOR-OIS Spread – The CDOR-OIS spread widened by +43 bps (+65%) WoW to 108 bps as of 03/18. Month-over-month, the CDOR-OIS spread widened by +82 bps (+307%).

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. 

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - cdor

5. 2-10 Spread – The 2-10 spread measured 72 bps as of 03/18, widening by +41 bps (+134%) WoW. Month-over-month, the 2-10 spread has widened +57 bps (+392%).

We track the 2-10 spread as an indicator of bank margin pressure. 

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - 210

6. High Yield (OAS) – Option adjusted spreads on high yield rose +258 bps (+40%) WoW, coming in at 9.04% as of 03/18 versus 6.46% in the prior week. Month-over-month, option adjusted spreads rose by +560 bps (+163%).

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - HY

7. Leveraged Loan Index  – The Leveraged Loan Index fell -264 points (-12%) to 1879 as of 03/18. Month-over-month, the Leveraged Loan Index fell -401 points (-18%). 

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - LLI

8. North American Financial CDS – The median North Americans financials swap widened +50 bps (+59%) WoW and +91 bps (+215%) MoM to 134 bps as of 03/18. 

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - NACDS

9. European Financial CDS – The median swap widened +34 bps (+43%) WoW and +72 bps (+167%) MoM to 115 bps as of 03/18.

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - EuroCDS

10. Asian Financial CDS – The median swap widened +11 bps (+16%) WoW and +39 bps (+103%) MoM to 77 bps as of 03/18.

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - AsiaCDS

11. Sovereign CDS – Spanish swaps widened most WoW and MoM, rising by +88 bps (+109%) and +135 bps (+402%) to 168 bps as of 03/18.

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - CDSSov

12. Emerging Market Sovereign CDS – Indian swaps widened most WoW, rising by +97 bps (+100%) to 194 bps as of 03/18. Month-over-month, Russian swaps widened most, rising by +236 bps (+400%) to 294 bps as of 03/18.

Systemic Contagion Risk Tracker | TED-Spread, CDOR-OIS, HY OAS All Continue to Move Higher - EMCds