U.S. Bank And Broker Default Risk

by: Bespoke Investment Group

One of the more noteworthy trends throughout the recent market pullback has been that default risk, which usually spikes when stocks sell off, hasn't budged. This suggests to us that the bulk of the selling has been due to portfolio restructuring to adjust for future tax increases and not due to some big shift in the fundamentals of this market.

Below are 5-year CDS (credit default swap) price charts for the six largest banks and brokers in the US. You can see that since mid-September when the stock market hit its most recent peak, default risk for these key financial firms traded sideways instead of spiking like we saw during the April-June market pullback earlier this year.