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.
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Not sure what CDX index you are using, but the most liquid 5yr is in from ~113bps on 9/9 to around 103bps on Friday. Massive tightening, but nowhere near 27%.
Posted by: Colin | September 21, 2009 at 10:59 AM
well, when the gov't backstops everything, and pays out 100 cents on the dollar, default risk will drop substantially.
Posted by: tradeking13 | September 21, 2009 at 01:53 PM
Im guessing this has to do with a data blip on the roll, maybe not splicing the new on-the-run with the off-the-run CDX.
Posted by: Colin | September 21, 2009 at 03:28 PM