Greek Yields A Harbinger of Things to Come?
Last week, 5 of the 8 risk measures we track registered positive readings on a week-over-week basis, while two were negative and one was neutral. An growing risk worth noting is Greece. As we highlight below, Greek 10-Year Bond Yields (the measure we track) are nearing their all time highs set before the EU bailout announcement. This may be a harbinger of a revisit of the Sovereign debt crisis from April through June of this year. As such, we would advise investors to keep close track of this metric going forward, as a break to new highs in the underlying (CDS is already at new highs) could snowball. Remember, it was the breakdown in Greece that triggered the global risk-off trade just a few months ago.
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. US Financials CDS Monitor – Swaps were mostly positive last week. Swaps widened for just 3 of the 29 reference entities, while 26 tightened. Conclusion: Positive.
Widened the most vs last week: SLM, MTG, AGO
Tightened the most vs last week: C, GS, AXP
Widened the most vs last month: BAC, WFC, SLM
Tightened the most vs last month: UNM, CB, GS
2. EU Financials CDS Monitor – In Europe, swaps for 36 of the 39 reference entities tightened and 4 widened. Conclusion: Positive.
Widened the most vs last week: IKB Deutsche Industriebank, DnB NOR, Nordea Bank
Tightened the most vs last week: Hannover Rueckversicherungs, Intesa Sanpaolo, HSBC Holdings
Widened the most vs last month: Bank of Ireland, Assicurazioni Generali, KBC Group
Tightened the most vs last month: UBS AG, HSBC, HBOS
3. High Yield (YTM) Monitor – High Yield rates rose 11 bps last week. Conclusion: Negative.
4. Leveraged Loan Index Monitor – The leveraged loan index rose 4 points last week. Conclusion: Positive.
5. TED Spread Monitor – Last week the TED spread rose for the first time in two months, closing at 17 bps versus 16 bps the prior week. Conclusion: Negative.
6. Journal of Commerce Commodity Price Index – Last week, the index rose 5 points, closing at 14.45. Conclusion: Positive.
7. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields fell 13 bps, ending the week at 1132 bps versus 1145 bps the prior week. However, trading yesterday reversed this positive move, with spreads rising again to 1148 bps. Conclusion: Neutral.
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 218 versus 225 the prior week. Conclusion: Positive.
Joshua Steiner, CFA