Credit Default Risk Chart

by: Bespoke Investment Group August 19, 2008 | about stocks: IYF / XLF    

Bespoke Investment Group

About the author: From Bespoke:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Below we highlight a one-year chart of the CDX North American Investment Grade Credit index that measures credit default swap prices for a number of US companies. 

During the Bear Stearns collapse in mid-March, the default risk index spiked sharply, as investors were forced to pay more to insure debt since uncertainty abounded.  After the Bear buyout, default risk declined significantly (although it remained elevated) through early June, and then began rising again as equity markets fell to their lows in mid-July. 

As the market has rallied off of its July lows, default risk is down, but just slightly.  The failure for default risk to come in like it did after the March market lows has investors worried that credit markets are still showing negative signs that the market has ignored due to oil's recent declines and the dollar's rally.

click to enlarge

Cdxrisk

Related Articles

This article has 3 comments:

  •  
    Aug 19 12:34 PM
    Another good post - thanks guys!
    Reply | Link to Comment
  •  
    Aug 19 01:58 PM
    GM and Ford, Fannie and Freddie, are all in the critical ward, with their senior securities trading at mid tens rates or higher. Until those shoes drop, spreads will remain wide. In a timing sense it is still somewhat early, but in level terms better corporates are already quite attractive. Not overly distressed stuff, but A rated financials for example.
    Reply | Link to Comment
  •  
    Aug 19 07:29 PM
    I'd like to see this risk measure correlated with the VIX.
    Reply | Link to Comment
More Comments on XLF ยป
Top Rated Comment Streams:

Numbers are net rating-

See all Top 100 »
More by Bespoke Investment Group

Investment Resources
Money Management
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Consumer Credit
Insurance
Investment Banks
Major & Intl. Banks