WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE

All Indicators Improved Last Week

In spite of a modest 1% rise in the XLF last week, all 8 of the 8 risk measures we track registered positive readings on a week-over-week basis.  

Our risk monitor looks at the following metrics weekly:

1. CDS for all available US Financials (29 companies)

2. CDS for large European Financials (39 companies)

3. High Yield

4. Leveraged Loans

5. TED Spread

6. Journal of Commerce Commodity Price Index

7. Greek Bond Spreads

8. Markit MCDX

1. Financials CDS Monitor – Swaps were mostly positive last week.  Swaps for 17 of the 29 CDS reference entities tightened, while 12 widened, with an average change of -1.7%.  Conclusion: Positive.

Tightened the most vs last week: MBI, AXP, XL

Widened the most vs last week: PGR, AON, MTG

Tightened the most vs last month: MBI, MS, AXP

Widened the most vs last month: ALL, TRV, AON

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - us cds

2. European CDS Monitor – We include a look at European swaps to gauge risk perception across the Atlantic. Swaps for 37 of the 39 reference entities tightened, while only 2 widened, with an average tightening of almost 10%.   Conclusion: Positive.

Tightened the most vs last week: Aviva PLC, Assicurazioni Generali, Banco Espirito Santo S/A

Widened the most/tightened the least vs last week: Sberbank, Caja de Ahorros del Mediterraneo, Investor AB

Tightened the most vs last month: Assicurazioni Generali, Credit Suisse, Aviva

Widened the most vs last month: Banco Pastor, Investor AB, IKB Deutsche Industriebank AG

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - euro cds

3. High Yield (YTM) Monitor –High Yield rates fell 16 bps last week. Rates closed the week at 8.44% down from 8.60% the week prior. Conclusion: Positive.

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - high yield

4. Leveraged Loan Index Monitor - Leveraged loans rose steadily last week, closing at 1489 versus 1475 the week prior. Conclusion: Positive.

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - leveraged loan

5. TED Spread Monitor – Last week the TED spread fell 4 bps, closing at 31 bps versus 35 bps last week. Conclusion: Positive.

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - ted spread

6. Journal of Commerce Commodity Price Index – Last week, the JOC index rose slightly, closing at 12.6, up just over 3 points versus last week’s close at 9.5.  Conclusion: Positive.

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - joc cpi

7. Greek Bond Yields Monitor – Greek bonds yields and CDS continued to plateau at a high level.  Last week yields fell 8 bps, ending the week at 1030 bps versus 1038 bps the prior week. Conclusion: Positive.

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - greek bonds

8. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads continued to fall last week, closing at 204 versus 214 the prior week.  Conclusion: Positive.

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - markit

Joshua Steiner, CFA

Allison Kaptur