European Banking Monitor: Widening in PIIGS Spreads Leads the Way

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 - Swaps were sharply wider in Europe last week. Much of the weakness was driven by Greek banks, which widened by an average 85 bps on the week.

 

European Banking Monitor: Widening in PIIGS Spreads Leads the Way - chart5 Euribor OIS spreadvf

 

Sovereign CDS – European Sovereign swaps widened notably last week. Portugal and Spain saw swaps widen 28 and 18 bps, respectively. Meanwhile, Italian and French swaps were wider by 14 and 10 bps. The US and Japan also widened by 2 and 4 bps. 

 

European Banking Monitor: Widening in PIIGS Spreads Leads the Way - chart2 sovereign CDS

 

European Banking Monitor: Widening in PIIGS Spreads Leads the Way - chart3 sovereign CDS

 

European Banking Monitor: Widening in PIIGS Spreads Leads the Way - 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 was unchanged at 9 bps.

 

European Banking Monitor: Widening in PIIGS Spreads Leads the Way - chart5 Euribor OIS spread

 

Matthew Hedrick 

Associate

 

Ben Ryan

Analyst

 

 

 


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