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Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .


European Financial CDS - Swaps were almost universally tighter across European Financials last week with the sole exception of Greece, where swaps rose across the board. While the most recent week of tightening was somewhat modest, the past month of change has been remarkable. On average, European Financials have tightened up by 46 bps or roughly 21%. #EuroBulls

European Banking Monitor: The Great Moderation - vv.banks

Sovereign CDS – Sovereign swaps were mixed last week with notable improvements coming from Europe while the ROW was modestly wider. Portugal and Italy tightened by 8 and 9 bps, respectively. This trend of ongoing tightening among the PIIGS countries is reflective of our 4Q13 macro theme #EuroBulls. On a month-over-month basis, the only country in our monitor not to show improvement is the US.

European Banking Monitor: The Great Moderation - vv.cds1

European Banking Monitor: The Great Moderation - vv. cds2

European Banking Monitor: The Great Moderation - vv.cds3

Euribor-OIS Spread – The Euribor-OIS spread widened by 2 bps to 11 bps. As the chart below shows, however, the increase put the measure back in-line with its past month average and is not an indication of rising risk in Europe's banking system. 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. 

European Banking Monitor: The Great Moderation - vv.euribor

Matthew Hedrick