Last week, 7 of the 8 risk measures registered negative readings on a week-over-week basis and one was positive. A summary table is shown at the top.
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 negative last week. Swaps widened for 24 of the 29 reference entities, while only 5 tightened. Conclusion: Negative.
Widened the most vs last week: BAC, WFC, SLM
Tightened the most vs last week: CB, TRV, AON
Widened the most vs last month: BAC, WFC, AXP
Tightened the most vs last month: PRU, CB, MBI
2. European CDS Monitor – In Europe, swaps for 34 of the 39 reference entities widened and 5 tightened. Conclusion: Negative.
Widened the most vs last week: Hannover Rueckversicherungs, Assicurazioni Generali, Aviva
Tightened the most vs last week: Investor AB, IKB Deutsche Industriebank, EFG Eurobank Ergasias
Widened the most vs last month: Hannover Rueckversicherungs, Assicurazioni Generali, Aviva
Tightened the most vs last month: DnB NOR, Investor AB, Svenska Handelsbanken
3. High Yield (YTM) Monitor –High Yield rates rose 4 bps last week. Conclusion: Negative.
4. Leveraged Loan Index Monitor – The leveraged loan index fell 2 points last week. Conclusion: Negative.
5. TED Spread Monitor – Last week the TED spread continued to fall, closing at 16 bps versus 18 bps the prior week. Conclusion: Positive.
6. Journal of Commerce Commodity Price Index – Last week, the index fell 3 points, closing at 9.16. This series last crossed zero on August 12th, 2008. Conclusion: Negative.
7. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose 70 bps, ending the week at 1145 bps versus 1075 bps the prior week. Greek bond spreads are now just 84 bps off of their crisis-period highs in May 2010, when spreads topped out at 1229 bps. Despite an absence of media coverage, the market remains concerned with the prospect of a sovereign default. Conclusion: Negative.
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 rose last week, closing at 225 last Thursday versus 220 the prior Friday. Pricing data was not available for last Friday. Conclusion: Negative.
Joshua Steiner, CFA