Positions in Europe: Covered France (EWQ) today in the Hedgeye Virtual Portfolio
Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".
Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 4 bps to 94 bps w/w.
ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB. The ECB pays lower rates than the market, so an increase in this metric demonstrates increased perceived counterparty risk and liquidity hoarding. Over the course of the last few months, this metric has been making higher highs and higher lows, a pattern that continued last week.
European Financials CDS Monitor – Bank swaps were wider in Europe last week for 29 of the 40 reference entities. The average widening was 2.5% and the median widening was 7.2%.
Security Market Program – The ECB's secondary sovereign bond purchasing program bought €1.104 Billion in the week ended 1/6 versus no reported buying in the week ended 12/30 and €3.361 Billion in the week ended 12/23 to take the total program to €213.0 Billion.