European Banking Monitor: Sovereign Swaps Tighter, Financials Swaps Unchanged

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 - It was a fairly uneventful week for EU bank swaps as they were higher by 1 bp, on average. Greek banks, however, saw swaps rise by 38 bps on the week and are now higher by an average of 114 bps on the month.

European Banking Monitor: Sovereign Swaps Tighter, Financials Swaps Unchanged  - chart1 Financials CDS

Sovereign CDS – Sovereign swaps mostly tightened over last week with Portugal the outlier at +19 bps to 209 bps (and now +41 bps m/m). The US also widened, though by a modest +2 bps to 19 bps.

European Banking Monitor: Sovereign Swaps Tighter, Financials Swaps Unchanged  - chart2 sovereign CDS

European Banking Monitor: Sovereign Swaps Tighter, Financials Swaps Unchanged  - chart3 sovereign CDS

European Banking Monitor: Sovereign Swaps Tighter, Financials Swaps Unchanged  - 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 2 bps to 9 bps.

European Banking Monitor: Sovereign Swaps Tighter, Financials Swaps Unchanged  - chart5 Euribor OIS Spread

Matthew Hedrick 

Associate

Ben Ryan

Analyst