State Default Risk Continues To Lighten

Includes: CMF, CXA, INY, NYF, PWZ, PZT
by: Bespoke Investment Group

We noted the pullback in financial default risk a couple of weeks ago, even in the face of a declining stock market. It's been awhile since we looked at state default risk, so below we highlight charts of 5-year CDS (credit default swaps) for four key states that saw default risk spike significantly in recent years -- New York, New Jersey, California and Illinois.

As shown, default risk for all four states has been trending lower all year, even when the stock market corrected this spring and fall. We saw increases in default risk during last year's market correction, but that hasn't been the case this year.

Of the four states shown, Illinois has the highest default risk with a 5-year CDS price of 177 basis points ($177 per year to insure $10,000 of debt for 5 years). California has the second highest CDS price at 158 basis points. New Jersey CDS currently trades at 103 basis points, while New York is the least "risky" of the bunch at 78 basis points.