Below is a chart of an investment grade CDS (credit default swap) index coupled with the S&P 500 Financial sector. During the financial crisis, default risk spiked across the board as investors worried that the entire system could collapse. As shown in the chart, CDS prices have declined significantly since the March 9th market low, however, and we're currently at levels not seen since early 2008. While default risk just made a new low, the Financial sector has not made new 2009 highs. The bulls are hoping this drop in CDS prices is a leading indicator that means financial stocks are on the verge of a resurgence.
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