Editor's Note: This is a complimentary research note from Hedgeye Analyst Matt Hedrick originally provided to subscribers on April 14, 2014 at 11:20 a.m.
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European Financial CDS – Swaps across Europe's banking system were little changed (median change = 0 bps), but the Greek banks continue to tighten notably, dropping an average of 40 bps in the past week and 185 bps in the past month. The news that GS & MS will be leading a secondary offering for National Bank of Greece doesn't hurt either.
Sovereign CDS – Sovereign swaps mostly widened over last week. Irish sovereign swaps tightened by -2.7% (-2 bps to 71 ) and Spanish sovereign swaps widened by 7.1% (6 bps to 93).
Euribor-OIS Spread – The Euribor-OIS spread was unchanged week-over-week at 13 bps. 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.