Bank CDS Watch – Stress Signs?

Here’s an interesting chart from our Global Cross Asset Market Monitor – it’s one of a series of unique and proprietary indicators that we use to help investors stay on top of the key trends, risks, and opportunities across global markets. The chart shows the average 5-year CDS (Credit Default Swap) pricing for the US vs European banks. Basically, it is a market-based measure of credit risk pricing for banks, and the key reason we watch this is to try and get a lead on potential issues in the banking sector (maybe presaged by a steady rise in CDS pricing, or a sudden spike).

At this point, risk looks well contained in the US banking sector, with risk pricing suppressed around the lows. European banks, however, have seen a steady widening and divergence from US banks, as lingering political risk (Brexit, Italian budget, German elections) weighs on the outlook, and softening economic momentum dampens risk appetites. In this sense, it is thus something we’re watching closely as the outlook in Europe evolves.