European Banking Monitor: PIIGS Sovereign CDS Widens

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 - Outside of Banco Espirito Santo, which tightened by 318 bps to 344 bps on the week, swaps were nominally wider across Europe last week (+2 bps). Russia's Sberbank continued to widen (+3 bps to 355 bps) though at a slower pace than in recent weeks.

European Banking Monitor: PIIGS Sovereign CDS Widens - chart 1 financials cds vf

Sovereign CDS – Sovereign swaps widened across the board over last week. The usual suspects, Italy, Portugal and Spain, widened by 16, 17 and 9 bps, respectively. Meanwhile, German and US sovereign swaps widened by 1 bp. Japan was a notable mover on the week, widening by 7 bps (+19%) to 43 bps. 

European Banking Monitor: PIIGS Sovereign CDS Widens - chart 2 sovereign CDS

European Banking Monitor: PIIGS Sovereign CDS Widens - chart 3 sovereign CDS

European Banking Monitor: PIIGS Sovereign CDS Widens - chart 4 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 was unchanged at 15 bps.

European Banking Monitor: PIIGS Sovereign CDS Widens - chart 5 euribor OIS Spread

Matthew Hedrick

Associate

Ben Ryan

Analyst