What Financial Default Risk is Telling Us About Stocks
Thursday, August 23, 2012 at 12:48PM With the S&P 500 making a new intraday bull market high on Tuesday and the financial sector showing significant strength as well, below is an updated look at where financial default risk stands as measured by the cost of 5-year credit default swaps.
The Bespoke Bank and Broker CDS Index is a cap weighted composite of the 5-year credit default swap prices for the largest financial firms around the world. We created the index during the financial crisis of 2008 and have been following it closely ever since. Our CDS index tracks inversely with stock prices most of the time, but divergences do occur, which can be very telling.
Throughout this rally in stocks, our CDS index has...
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