'Credit Default Swap' Data Indicate Increasing Short-Term Market Risk

The latest credit default swap (CDS) data from BMO Capital Markets indicate a number of investors are growing increasingly concerned about the one-year outlook for capital markets. In a new report, analyst Mark Steele discussed the recent surge in one-year CDS activity and what it means for the market.

CDSs are essentially insurance for bondholders, so a pickup in CDS levels indicates that investors are becoming worried about the safety of their investments.

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Steele looked at the change in one-year CDS levels compared to the change in five-year CDS levels for top global banks that have systemic financial market exposure.

“Over half of the FSA’s too-interconnected-to-fail list saw their 5y CDS widen by at least 20 percent in the past five days,” he explained.

According to the 1/5 year CDS ratio, the banks that are most concerning to the market at the moment are Deutsche Bank AG (USA) DB, Credit Suisse Group AG (ADR) CS, Standard Chartered PLC (which trades on the LON exchange under the ticker "STAN") and Barclays PLC (ADR) BCS.

In terms of the "Big 4," none of the top names made the top 12 on the list, but JPMorgan Chase & Co. JPM came in highest at 13, followed by Bank of America Corp BAC at 18.

Disclosure: The author owns shares of Bank of America.