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European Banking Monitor: Financials Swaps Pull-Back

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 - 31 of 37 reference entities in Europe tightened on the week by an average of 5 bps. While the month-over-month change is still +11 bps, on average, it has moderated notably with this last print.

European Banking Monitor: Financials Swaps Pull-Back - chart1 Financials CDS

Sovereign CDS – Sovereign swaps were mixed last week with Italian swaps widening the most (+13 bps to 133 bps) and Portuguese swaps tightening the most (-6 bps to 190 bps). 

European Banking Monitor: Financials Swaps Pull-Back - chart2 sovereign CDS

European Banking Monitor: Financials Swaps Pull-Back - chart3 sovereign CDS

European Banking Monitor: Financials Swaps Pull-Back - 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 tightened by 2 bps to 7 bps.

European Banking Monitor: Financials Swaps Pull-Back - chart5 Euribor OIS Spread

Matthew Hedrick 

Associate

Ben Ryan 

Analyst