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The S&P 500 Financial sector (XLF) broke out to its highest level since early 2011 last week, and with it came a continued drop in default risk for the sector. Below is a chart of our Bank and Broker CDS (credit default swap) Index, which we created during the 2008 Financial Crisis to track movements in default risk for the major financial firms around the world. As shown, default risk for the financials has been falling for most of the year, and our CDS index is now at its lowest level since April 2011.

Even with Fiscal Cliff worries on the table, the credit markets suggest that investors are as comfortable with the financials as they've been in quite a long time.

(click to enlarge)

Source: Financial Default Risk Continues Its Fall