Mag Seven credit protection signals rising risk
The speaker argued that a substantial widening in a custom credit default swap (CDS) index of major technology names indicates a repricing of credit risk that should be monitored.
The argument
The speaker tracked the average five-year CDS levels of Google, Amazon, Apple, Microsoft, Oracle, and Broadcom. He noted that this index has widened significantly to sit only a few basis points tighter than the broad CDX Investment Grade index, despite no major economic collapse or stock price crash.
The thesis, stress-tested
✓ What validates it
- ✓The custom CDS index widens past the broad CDX IG index
- ✓Mag Seven credit spreads continue to widen without a corresponding equity sell-off
▸ Risks discussed
- ▸CDS widening may reflect technical supply and demand dynamics for credit protection rather than deteriorating corporate fundamentals
Hear it yourself
"I created a custom index on the old Bloomy to track the average five year CDS level of Google, Amazon, Apple, Microsoft, Oracle, and Broadcom. This has widened a substantial amount and is now only a few basis points tighter than the Broad CDX IG."
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