European Banking Monitor: Portuguese and Russian Swaps Move Higher

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 .

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European Financial CDS - Portugal and Russia saw their bank swaps widen sharply, again, on the week. Not suprisingly, Portugal's Banco Espirito Santo - after weeks of heavy negative news flow - received a bailout over the weekend from the Bank of Portugal. Depositors and senior creditors appear to be protected, but everything downstream in the capital structure looks to be a washout. Meanwhile, US sanctions continue to take a toll on Russian banks, as Sberbank swaps widened 69 bps w/w to 352 bps and are up 110 bps on the month. 

European Banking Monitor: Portuguese and Russian Swaps Move Higher - chart 1 financials cds

Sovereign CDS – Sovereign swaps were wider in Portugal and Italy (+21 bps and +6 bps, respectively), but little changed elsewhere, and actually tightened 4 bps in Spain. The US and Germany were unchanged. 

European Banking Monitor: Portuguese and Russian Swaps Move Higher - chart 2 sovereign CDS

European Banking Monitor: Portuguese and Russian Swaps Move Higher - chart 3 sovereign CDS

European Banking Monitor: Portuguese and Russian Swaps Move Higher - chart4 sovereign CDS

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 widened by 1 bps to 15 bps.

European Banking Monitor: Portuguese and Russian Swaps Move Higher - chart5 euribor OIS spread

Matthew Hedrick

Associate

Ben Ryan

Analyst