As regular readers are certainly aware, the spread between the interest rate on high yield corporate bonds and comparable treasuries has risen sharply since June 1st. While most financial stocks have sold off significantly as a result of the turmoil in the credit markets, there are some stocks in the sector that have actually done very well. Below we list the 21 financial stocks in the Russell 3000 that are up more than 25% since high yield spreads bottomed on June 1st.
While one can look at a lot of these names and rationalize a reason for their outperformance during the current period, one of the lesser known names on the list benefits directly from heightened risk in the credit markets.
GFI Group (GFIG) specializes in what are known as credit default swaps. For those who are unfamiliar with the term, a credit default swap is a derivative contract where one party sells another an insurance policy against a 'credit event' (debt default, missed coupon payment, etc.) occurring. As the chart below illustrates, GFIG has directly benefited from rising levels of risk in the credit markets.