Pump Prices Plunge, But Plug-In Prices Persist

Data Interpretation

Summary:

Reaching a price point last seen on March 6, the national average for a gallon of gas fell six cents to $3.38 since last week.

Reaching a price point last seen on March 6, the national average for a gallon of gas fell six cents to $3.38 since last week. Meanwhile, the national average for L2 commercial electricity has held steady for a month.

“The clouds of war overseas are less dark at the moment and the Atlantic is quiet now too, which is taking pressure off of oil prices,” said Andrew Gross, AAA spokesperson. “More retail locations east of the Rockies are selling gas below $3 a gallon. Will this trend continue through the end of the year? Stay tuned.”

With an estimated 1.2 million AAA members living in households with one or more electric vehicles, AAA lists the kilowatt-per-hour cost for Level 2 (L2) commercial charging by state.

Today’s national average for a kilowatt of electricity at an L2 commercial charging station is 34 cents.

According to new data from the Energy Information Administration (EIA), gas demand crept higher last week from 9.04 million b/d to 9.19. Meanwhile, total domestic gasoline stocks fell from 222.2 to 220.6 million barrels, but gasoline production increased, averaging 9.8 million daily. Mild gasoline demand, steady supply, and low oil costs may cause pump prices to slide further.

Today’s national average for a gallon of gas is $3.38, 12 cents less than a month ago and 47 cents less than a year ago.

Quick Gas and Electricity Stats

Gas:The nation’s top 10 most expensive gasoline markets are Hawaii ($4.65), California ($4.59), Washington ($4.19), Nevada ($3.95), Oregon ($3.83), Alaska ($3.75), Illinois ($3.73), Washington, D.C. ($3.64), Idaho ($3.58), and Utah ($3.57)

The nation’s top 10 least expensive gasoline markets are Mississippi ($2.93), Oklahoma ($2.98), Tennessee ($2.99), Texas ($3.00), Louisiana ($3.03), South Carolina ($3.03), Alabama ($3.04), Arkansas ($3.07), Kansas ($3.10), and Missouri ($3.11).

Electric:The nation’s top 10 least expensive states for L2 commercial charging per kilowatt hour are Kansas (21 cents), Missouri (24 cents), Delaware (25 cents), Texas (28 cents), Nebraska (29 cents), Utah (29 cents), Wisconsin (29 cents,) Michigan (30 cents), Vermont (30 cents) and North Dakota (30 cents).

The nation’s top 10 most expensive states for L2 commercial charging per kilowatt hour are Hawaii (56 cents), West Virginia (45 cents), South Dakota (43 cents), Arkansas (42 cents), Idaho (42 cents), South Carolina (41 cents), Montana (41 cents), Kentucky (41 cents), Alaska (40 cents) and Tennessee (40 cents).

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Samantha Luan

Economic

When history repeats itself, the first time is a tragedy; the next is a farce. If we fail to learn from past financial crises, we risk making avoidable errors, often with irreversible, even tragic consequences.

Between a rock and a hard place

Many people worldwide suffered greatly during the 2008/09 global financial crisis (GFC) and the Great Recession. However, the experiences of most developing nations were significantly different from those of the Global North.

Developing nations' varied responses reflected their circumstances, the constraints of their policymakers and their understanding of events and options.

Hence, the Global South reacted very differently. With more limited means, most developing countries responded quite dissimilarly to rich nations.

Hard hit by the GFC and the ensuing Great Recession, developing countries' financial positions have been further weakened by tepid growth since. Worse, their foreign reserves and fiscal balances declined as sovereign debt rose.

Most emerging market and developing economies (EMDEs) mainly save US dollars. The few countries with large trade surpluses have long bought US Treasury bonds. This finances US fiscal, trade and current account deficits, including for war.

Vagaries of finance

After the GFC, international investors — including pension funds, mutual funds and hedge funds — initially continued to be risk-averse in their exposure to EMDEs.

Thus, the GFC hit growth worldwide through various channels at different times. As EMDE earnings and prospects fell, investor interest declined.

But with more profits to be made from cheap finance, thanks to "quantitative easing", funds flowed to the Global South. As the US Federal Reserve raised interest rates in early 2022, funds fled developing nations, especially the poorest.

Long propped up by easy credit, real estate and stock markets collapsed. With finance becoming more powerful and consequential, the real economy suffered.

As growth slowed, developing countries' export earnings fell as funds flowed out. Thus, instead of helping countercyclically, capital flowed out when most needed.

The consequences of such reversals have varied considerably. Sadly, many who should have known better chose to remain blind to such dangers.

After globalisation peaked around the turn of the century, most wealthy nations reversed earlier trade liberalisation, invoking the GFC as the pretext. Thus, growth slowed with the GFC, that is, well before the Covid-19 pandemic.

Markets collapse

Previously supported by the Great Moderation's easy money, stock markets in EMDEs plunged in the GFC. The turmoil arguably hurt EMDEs much more than rich nations.

Most rich and many middle-income households in EMDEs own equities, while many pension funds have increasingly invested in financial markets in recent decades.

Financial turmoil directly impacts many incomes, assets and the real economy. Worse, banks stop lending when their credit is most needed.

This forces firms to cut investment spending and instead use their savings and earnings to cover operating costs, often causing them to lay off workers.

As stock markets plummet, solvency is adversely impacted as firms and banks become overleveraged, precipitating other problems. Falling stock prices trigger downward spirals, slowing the economy, increasing unemployment, and worsening real wages and working conditions. As government revenues decline, they borrow more to make up the shortfall.

Various economies cope differently with such impacts as government responses vary. Much depends on how governments respond with countercyclical and social protection policies. However, earlier deregulation and reduced means have typically eroded their capacities and capabilities.

Policy matters

Official policy response measures to the GFC endorsed by the US and International Monetary Fund (IMF) included those they had criticised East Asian governments for pursuing during their 1997/98 financial crisis.

Such efforts included requiring banks to lend at low interest rates, financing or "bailing out" financial institutions and restricting short selling and other previously permissible practices.

Many forget that the Fed's mandate is broader than most other central banks. Instead of providing financial stability by containing inflation, it is also expected to sustain growth and full employment.

Many wealthy countries adopted bold monetary and fiscal policies in response to the Great Recession. Lower interest rates and increased public spending helped.

With the world economy in a protracted slowdown since the GFC, tighter fiscal and monetary policies since 2022 have especially hurt developing countries.

Effective countercyclical policies and long-term regulatory reforms were discouraged. Instead, many complied with market and IMF pressures to cut fiscal deficits and inflation.

Reform finance

Nevertheless, appeals for more government intervention and regulation are common during crises. However, procyclical policies replace countercyclical measures once a situation is less threatening, as in late 2009.

Quick fixes rarely offer adequate solutions. They do not prevent future crises, which rarely replay previous ones. Instead, measures should address current and likely future risks, not earlier ones.

Financial reforms for developing countries should address three matters. First, needed long-term investments should be adequately funded with affordable and reliable financing.

Well-run development banks, relying mainly on official resources, can help fund such investments. Commercial banks should also be regulated to support desired investments.

Second, financial regulation should address new conditions and challenges, but regulatory frameworks should be countercyclical. As with fiscal policy, capital reserves should grow in good times to strengthen resilience to downturns.

Third, countries should have appropriate controls to deter undesirable capital inflows which do not enhance economic development or financial stability.

Precious financial resources will be needed to stem the disruptive outflows that invariably follow financial turmoil and to mitigate their consequences.

Source: The Edge Malaysia

To stay updated on all economic events of today, please check out our Economic calendar

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S&P Global Inc.

Data Interpretation

Solid growth signaled by the S&P Global flash PMI in August points to robust GDP growth in excess of 2% annualized in the third quarter, which should help allay near-term recession fears. Similarly, a fall in selling price inflation to a level close to the pre-pandemic average signals a 'normalization' of inflation and adds to the case for lower interest rates.

However, this 'soft-landing' scenario looks less convincing when you scratch beneath the surface of the headline numbers. Growth has become increasingly dependent on the service sector as manufacturing, which often leads the economic cycle, has fallen into decline. At the same time, service sector growth is constrained by hiring difficulties, which continue to push up pay rates and means overall input cost inflation remains elevated by historical standards.

The policy picture is therefore complicated, and hence it's easy to see why policymakers are taking a cautious approach to cutting interest rates. However, on balance the key takeaways from the survey are that inflation is continuing to slowly return to normal levels and that the economy is at risk of slowing amid imbalances.

Sustained, but unbalanced, growth

The headline S&P Global Flash US PMI Composite Output Index edged down from 54.3 in July to a four-month low of 54.1 in August. Output has now risen continually over the past 19 months. Although the pace of expansion slowed slightly in August, it remained among the highest seen over the past two years.

The solid growth picture in August points to robust GDP growth in excess of 2% annualized in the third quarter after the 2.8% increase seen in the second quarter.

However, growth has become increasingly uneven. While service sector activity grew at a solid and increased rate in August, the rate of growth falling just shy of June's 26-month high, manufacturing output fell for the first time since January. The factory output decline was the steepest recorded since June 2023.

Worryingly, the manufacturing sector's forward-looking orders-to-inventory ratio has fallen to a level not plumbed since the global financial crisis if the pandemic months are excluded.

The recent accumulation of unfinished inventory has been amongst the largest recorded in the history of the survey, often reflecting weaker than expected sales. Inflows of new orders into factories fell for a second successive month in August, dropping at the sharpest rate since December, in part due to the largest drop in export orders for 14 months.

Falling employment

Growing concerns about demand and the business outlook led to a near-stalling of employment growth in the manufacturing sector, which posted the smallest payroll gain since January.

A renewed fall in service sector jobs was meanwhile recorded after two months of job gains. However, falling employment in the service sector largely reflected difficulties hiring staff and replacing leavers, rather than being a symptom of weak demand.

Employment consequently fell overall in August, dropping for the first time in three months. Net job losses have now been reported in three of the past five months, marking the softest spell of payroll growth since the first half of 2020.

Prices rise at slower rate despite stubborn cost growth

The August flash PMI also saw average prices charged for goods and services rising at the slowest rate since January 2020 barring only the recent dip seen in January. Importantly, the rate of inflation is now only marginally above the average recorded in the decade prior to the pandemic, hinting at near 'normal' price pressures.

Selling price inflation notably cooled in the service sector, which has been a key area of recent concern to policymakers, dropped to the second-lowest since May 2020 and a level only marginally above the pre-pandemic average.

Measured across goods and services, the flash PMI's selling price index is down to levels broadly consistent with the FOMC's 2% CPI target.

The slower rise in charges occurred despite sustained upward pressure on input prices. Average costs across manufacturing and services rose at an unchanged rate in August, matching July's four-month high.

Input price inflation consequently remained elevated by historical standards, most notably in the service sector. Although the latter cooled slightly from July's four-month high, the rate of input cost inflation accelerated in manufacturing to the highest since May. Firms cited higher staff costs as a key cause of raised prices alongside higher raw material prices and increased shipping rates.

Outlook

S&P Global Market Intelligence has recently upped its forecast for US economic growth in 2024 from 2.4% to 2.6%, given the better-than-expected performance so far this year. The economy grew at a 2.8% annualized rate in the second quarter, and recent data - notably retail sales and the S&P flash Services PMI - have encouraged the view that robust growth will be sustained at a pace of approximately 2% into the third quarter.

While a rate cut at the September FOMC meeting is looking increasingly likely, bringing upcoming CPI and payroll data firmly into focus for data-dependent policymakers, wage pressures and service sector inflation will continue to be an important determinant of the speed and scale of any policy loosening.

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API

Economic

Big Question: How did we get here?

Background: In 1970, American crude oil production reached 9.6 Mbd and then fell as the resources available and the technologies to extract them both hit their limits and natural declines took over. The next two decades were marked by falling production and rising foreign crude imports. Production sank to 5 Mbd in 2008 before the shale revolution – using modern hydraulic fracturing (“fracking”) and horizontal drilling technologies – drove production to 12.3 Mbd in 2019. After the pandemic slowed global economies and slashed demand, U.S. production dropped to 11.2 mbd in 2021. Recovering economies and restored demand pushed production to 12.9 Mbd in 2023.

Key Factors Drive Production: American oil and natural gas production is the result of many factors, including: demand that drives new development, access to resources (public and private), technology and innovation, and the policy environment. It does not happen with the flip of a switch. For example, offshore production can take more than a decade of planning, engineering and developing to come online.

Credit Where Credit’s Due: Today’s record oil production is largely due to investment decisions made under previous government policy as well as industry’s focus on innovation, such as fracking. API’s Mason Hamilton noted earlier this year that offshore lease sales under President Clinton (1993-2001) account for the largest share of current offshore production. Lease sales under President Reagan (1980-88) still account for about 19% of U.S. offshore production. Producing crude oil onshore takes less time but still requires clarity on policies, access to resources in the future, demand, and market stability. Clear, stable policies now and into the future enable investment decisions to be made with confidence.

Continuing America’s Energy Advantage: Because the U.S. leads the world in producing oil and natural gas – the world’s top energy sources – America enjoys a significant energy advantage over much of the rest of the world. But the advantage will not be sustained without government policies and new investment to replace naturally declining wells while keeping up with projected increased demand.

Washington Uncertainty: While production has grown significantly on state and private lands, in recent years Washington has hindered development on federal lands and waters, pausing new onshore permitting, and not providing consistent quarterly onshore leasing opportunities, as required by law. The current federal offshore leasing program is the smallest in program history, providing a maximum of just three lease sales through 2029. Meanwhile, the U.S. Energy Department has implemented a pause on permits for new liquefied natural gas export (LNG) facilities, creating uncertainty for American allies that rely on U.S. natural gas.

Voters See Value in U.S. Energy Leadership: Recent polling shows that U.S. voters in seven key battleground states recognize the value of American production – for the economy and the nation’s energy security. In each state, eight in 10 voters said they support increasing domestic oil and natural gas production to help limit U.S. reliance on other countries.

Policy Changes Needed: Americans deserve better – better policies and better strategies. Federal lands and waters account for 25% of U.S. oil production (see here and here) and about 11% of natural gas production. Without more robust leasing strategy – and recognition of the role of U.S. LNG exports in maintaining American energy leadership around the world – the U.S. could squander its energy advantage. API’s Five-Point Policy Roadmap lays out a bipartisan path to strengthen American production and help with inflation.

Two key points from API President and CEO Mike Sommers on Fox News:

“We know for a fact that we're going to have to produce more oil and gas in this country, because energy demand is going up in the United States and throughout the world, not down.”

“As a country, we're the No. 1 one producer of oil and gas in the world right now. If we lose that posture, if we lose that energy leadership that we have fought so hard for, for decades and decades, what does that mean for our posture in the world from an energy-security perspective?”

Bottom line: Given geopolitical uncertainty in the world, there has never been a better time for strong U.S. energy production today and policies that support it in the future. Americans must be able to count on affordable, reliable energy that comes from U.S. oil and natural gas.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Kevin Du

Cryptocurrency

Although Bitcoin's price is yet to reclaim its March all-time high, an analyst claims that the bull market remains strong and steady with no signs of a deep correction, based on two key metrics.

In an Aug. 18 report, CryptoQuant researcher Axel Adler looked to two key metrics — the Bubble vs. Crush Market Structure and the MVRV Z-score — as signals that Bitcoin's current price action is tracking a healthy path forward.

"We can see that the current bull cycle is developing quite steadily without significant anomalies or sharp jumps," Adler added.

Bitcoin's Bubble vs Crush Market Structure score indicates no bubble

Adler highlighted that the Bubble vs. Crush Market Structure has dropped to a score of 1.02, which he considers "the baseline," suggesting that Bitcoin is not currently experiencing a bubble.

Bubbles form in the market when Bitcoin's market capitalization "grows faster" than its realized capitalization. When Bitcoin hit its all-time high of $73,679, the indicator was signaling a bubble, with a score of around 1.5.

Less than a week later, the price plummeted 16% to $61,930, according to CoinMarketCap data.

2 Key Bitcoin Metrics Signal Steady Bull Cycle — 'No Bubble' In Sight_1

Bitcoin is still struggling to hold onto the key $60,000 level that traders have been looking to as a pivotal point in recent times. Since July 22, Bitcoin has been trading in a 40% range, oscillating between a low of $49,842 and a high of $69,799.

At the time of publication, Bitcoin is trading at $59,236.

Adler also noted that Bitcoin's 30-day Moving Average (DMA) MVRV Z-Score is at 1.8, slightly over BTC's annual average of 1.6, which suggests "minimal overvaluation."

When the 30DMA MVRV Z-Score surges, it can be an indicator to traders that the asset is overvalued and a price correction may be coming.

In March 2021, Bitcoin's 30DMA MVRV Z-Score reached above 5, just before Bitcoin reached a high of $60,701, just three months later the asset declined 45% to $32,827 by July.

Both Bubble vs. Crush and the MVRV-Z score are metrics used to gauge whether or not Bitcoin could be considered "overvalued."

"As long as the metric does not reach extreme levels that could signal a significant risk of correction, the market can be considered bullish," Adler added.

Several traders have been commenting on Bitcoin's extended consolidation in recent times.

"We are in the boring phase. This phase happens before and after the halving," pseudonymous crypto trader Ash Crypto wrote in an Aug. 20 X post.

Meanwhile, pseudonymous crypto trader Rekt Capital added that Bitcoin is "on the cusp of reclaiming its Post-Halving ReAccumulation Range," suggesting that Bitcoin could move higher in the coming months.

Source: Cointelegraph

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NAR

Finances

Housing affordability is a struggle, with current high home prices and elevated mortgage interest rates. In nearly half of metro areas, home buyers need a family income of at least $100,000 to purchase a home with a 10% down payment. Since first-time buyers do not have housing equity to rely on, they are making financial sacrifices to enter homeownership. First-time buyers today are older, with a median age of 35 and a household income of nearly $25,000 more than the past year. They have had time to be demure and mindful of their home purchase.

Prior living situation

First-time buyers may also be demure and mindful before even entering homeownership. Nearly one-quarter of first-time buyers purchased their home after moving directly from a family or friend's home. Living at a family home to save for a down payment epitomizes being demure and mindful of one's finances.

Buyer offers

While more inventory is trickling into the housing market, there is still limited inventory. First-time buyers have to be patient when there are multiple offers. The typical seller receives more than one offer, and the typical home sells in under a month, which indicates a fast-paced housing market. First-time buyers typically have a smaller down payment and less room to negotiate on home price. They must be demure and mindful that they may have to place offers on more than one home before a contract is accepted.

Working with a real estate agent

Eighty-nine percent of home buyers use a real estate agent or broker to purchase their home. Buyers want a real estate agent or broker who is not only able to help them find the right home but is going to help them negotiate and to help them explain and understand the real estate market. These factors are especially true for first-time home buyers. This is the biggest financial purchase of one's life, and real estate agents are helping buyers achieve the American dream. Certainly, one can consider helping a home buyer achieve part of the American dream as being demure and mindful.

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ING

Economic

Stocks

Supply, elections and rate cuts remain the three pillars underpinning spread developments in the coming months. We expect spreads will remain in a narrow trading range for the remainder of the year and volatility will be emphasised by these three pillars.

A combination of recession fears in the US, concerns over a wider conflict in the Middle East, the unwinding of the Japanese carry trade due to the outperforming yen, and the markets now pricing in a more aggressive Federal Reserve rate cut have all contributed to the recent weakness in credit. We expect there could also be some volatility around the US elections in November. In our opinion, these periods of widening create an opportunity for pick-up, as spreads will stay mostly contained and retrace promptly on strong technicals.

Six Reasons Credit Spreads Are Set to Stay Tight_1

Six Reasons Credit Spreads Are Set to Stay Tight_2

Six reasons spreads will stay tight

Technical strength – demand is plentiful

Technicals have been keeping credit markets rather compressed and rangebound over the past six months. Strong inflows on the back of the very attractive yield are still present in the credit space. Demand remains high for credit, with yields still marginally in excess of dividend yields.

Six Reasons Credit Spreads Are Set to Stay Tight_3

We have also seen strong inflows from mutual funds and ETFs, with EUR investment grade inflows amounting to 6% of assets under management (AuM) on a year-to-date basis, and nearly 8% on a 52-week basis. EUR high yield remains positive but to a lesser extent with just 3.3% of AuM inflowing on a YTD basis. The same high demand for credit is also seen in USD credit on a YTD basis, with over 6% of AuM flowing into USD IG and just under 6% of AuM into USD HY.

EIR IG mutual fund flows have been very concentrated in the short end of credit over the past several months. On a YTD basis, the 0-4yr area has seen 6.5% of AuM inflowing, and the 4-6yr area has seen 5.2% of AuM inflowing. Meanwhile, the 6yr+ bucket has only seen 2.6% of AuM flowing in YTD.

Six Reasons Credit Spreads Are Set to Stay Tight_4

We have already seen some steepening of credit curves over the past few months, but we expect more to come. The long end is not attractive enough to position there (apart from in the primary market, when some new issue premium is being offered). The value area is still in the short to the belly of the curve from both a spread and yield angle (as yield curves still look flat). For corporates, there is a 20bp spread steepness level, we expect that will continue towards 30bp. Similarly for financial spreads, the current steepness is 30bp, which we expect will reach 40bp (using the differential between 7-10yr index and 3-5yr index).

Lastly, the European Central Bank is still holding a rather significant amount of the EUR corporate credit market. As it stands, the ECB holds €303bn under the Corporate Sector Purchase Programme and €46bn under the Pandemic Emergency Purchase Programme. This is a significant 20% of the EUR IG Corporate credit market, which totals c.€1.7tr. This reduces volatility in the market in times of weakness and acts as a backstop for spreads.

Technical strength – slowdown in supply

Supply so far this year has been strong with corporate YTD supply already sitting at €257bn, running ahead of previous years, and financial supply sitting at €351bn. The surprise to the upside has been met with very strong demand, as subscription levels have been at record-breaking levels (an average of nearly four times versus the normal average of three times) while new issue premiums have been very low (as low as 0-4bp on average).

As suspected, supply has been significant in the first half of the year with front loading to take advantage of the large demand, relatively tight spreads and uncertainty on the horizon for the second half of the year with growing geopolitical concerns and multiple elections taking place.

Normally, we would see a 60-40 split between the first half of the year versus the second. This year, we expect the split could be closer to 70-30. The primary market has already opened back up rather early and many deals have been priced. Naturally, the end of August and September will still be plentiful with supply, but a slowdown in the fourth quarter will be more dramatic.

Six Reasons Credit Spreads Are Set to Stay Tight_5

We had forecast an increase, but not record-breaking supply for corporates in 2024. We are certainly on track to see more supply versus last year, despite a slowdown expected in the second half. However, we may see supply surprise slightly more than previously expected. This comes on the back of a soft landing and as such, an increase in M&A activity. We expect supply will continue to be met with strong demand. Already, the deals being priced in the past week have been met with very strong demand with still-low NIPs and large books. The value in the market is still very present at these levels and strengthens our view of a buying-the-dip market.

Total return with falling rates

Total return should increase more as rates fall further in the coming months. The EUR swap rates have already come down substantially, falling by over 100bp compared to this time last year, and falling 50bp in the past few months from the highs of this year. As a result, EUR corporates pencil in a YTD return of 2% and EUR financials have seen a return of 2.7%. This strong total return should increase further in the coming months as our rates strategists expect a further decrease in rates to the tune of 10-20bp, and some steepening of the rate curves as rate cuts continue.

Mostly favourable macro picture

The macro picture still looks to be favourable for the most part. Recession is not our base case with a soft landing more likely, particularly in Europe. Inflation has been kept mostly under control and we don’t foresee a resurgence at this time (although a resurgence of inflation is a risk to our more constructive outlook).

Furthermore, in the event of a Trump presidency in the US – and particularly in a constrained scenario whereby Congress is split with the Democrats winning the Senate and Republicans winning the House – Trump will have more of a focus on the international playing field. This will likely result in a deal with Russia over the Ukraine conflict and, potentially, some reduction in Middle East tensions. These are both credit positives. However, it is still questionable whether a favourable deal with Russia will be made. And on the flip side, any implementation of tariffs is a GDP negative.

Recovering real estate

The real estate state sector has recovered a great deal in the past few months after really feeling the pinch in the higher rates environment. The differential over the overall index has almost recovered to the levels of January 2022, which used to average between a 25-30bp premium for the sector versus around 40bp now. This is down from the significant 190bp differential at the peak real estate wides.

Naturally, there is still some tension and uncertainty in aspects of the sector, but most names are in a comfortable enough spot. There has been some dispersion between names in terms of the performance of quarterly numbers. Broadly speaking, earnings growth remains robust while valuations have shown signs of bottoming out and have decreased in some places – but the recovery will be varied. We have also seen some issuers return to the bond market, a strong positive signal. With rates falling more from here, the sector should continue to feel relief.

Six Reasons Credit Spreads Are Set to Stay Tight_6

Tight CDS and iTraxx Main

CDS levels are trading rather tight. The iTraxx main is trading at just 54bp, close to the tightest levels seen over the past two years, and is trading inside cash spreads. This indicates the low level of risk being priced in and notably low volatility. The implied one-year default rate of the iTraxx main at the moment is just 0.75%. Six Reasons Credit Spreads Are Set to Stay Tight_7