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 - After widening steadily, swaps were predominantly tighter in Europe this past week. Part of the relief came from Portugal where initial reports of a Luxembourg investigation into Espirito Santo turned out to be wrong. Meanwhile, a temporary short-selling ban in the stock and management change all led to a relief rally. Espirito Santo swaps were 24 bps tighter on the week, closing at 294 bps, but remain +124 bps on the month.
Sovereign CDS – Sovereign swaps were little changed on the week outside of Portugal. Portguese swaps tightened 22 bps to 132 bps on the news that its largest bank, Espirito Santo, was not under investigation by Luxembourg.
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 was unchanged at 15 bps.