US stock markets rose about 2.5% last week, but the biggest news came in the credit markets where default risk had its biggest weekly decline since the March equity market lows. Below is a one-year chart of a credit default swap (CDS) index that measures default risk for 125 North American investment grade entities. We also overlay a chart of the S&P 500. As shown, the CDS index fell 27% last week to a new 52-week low. Since the peak in default risk, the CDS index shown below is now down 53.38%. It is also at its lowest levels since last June. If the S&P 500 were to get back to its June '08 levels, it would need to rally more than 20% from here.
this just means rally is due to stablization of financial system, which can be confirmed by drop of CDS. it doesn't mean rally will continue, because CDS is low.
you can have CDS low and bear market at the same time.
Looks like some guy had the same question there. Anyway current level of 92bps is pretty tight already but I see there's potential to go down further to 80s or even 70s.
Looks like some guy had the same question there. Anyway current level of 92bps is pretty tight already but I see there's potential to go down further to 80s or even 70s.
Maxie 发表于 2009-9-22 11:56
IMHO, even at level 92bps is good enough. As you said, CDS price (and many other credit indicators as interest spread, etc.) is already at level of May 2008. Just imagine if the market goes back to May 2008.
the cdx you quoted was investment grade if you do a side by side return comparison between IG and SPX then you will see that IG has not fallen much during the crisis. On a rolling 1 year basis it has outperformed SPX and HY (on the bond side i mean). There are a lot of more interesting fact going on between these bencmarks
IMHO, even at level 92bps is good enough. As you said, CDS price (and many other credit indicators as interest spread, etc.) is already at level of May 2008. Just imagine if the market goes back t ...
Diffusion 发表于 2009-9-22 13:19
sorry i don't have much to say it's just some simple observations. basically IG has sustained the storm very very well and outperformed equity and HY. especially last dec IG made a come back way before equity and HY which bottomed out in feb 09 or so. In addition the risks associated with IG has been far less than equities and HY.
IG companies have been issuing debt and accumulating cash for the last 9 months. now the economic condition may have totally changed. what started this was a liquidity crisis which may have very well gone away for many companies in trouble 9 months ago.
IG = Investment grade, meaning low risk
HY = High yield, meaning high risk.
So, roughly speaking, low risk companies recovered first and high risk companies recovered later, and then the equity market followed suit. It's a natural extrapolation that equity market will recover to where it was before the crisis. Whether the extrapolation works is a big question.
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发表于 2009-9-21 03:48 PM
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发表于 2009-9-21 05:14 PM
