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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 mostly tightened in Europe last week.  Greek banks are once again in the spotlight with swaps tightening between -193 bps and -295 bps on news of a last minute, four-month extension to the country's bailout. Even with ~200 bps of tightening, Greek banks are still trading at 1 bps.

European Banking Monitor: Greek Swaps Tighten on Bailout Extension - chart1

Sovereign CDS – Sovereign swaps mostly tightened over last week with dovish language from the U.S. Fed and an extension to Greece's bailout. Portuguese sovereign swaps tightened by -6.3% (-11 bps to 168 ) and Spanish sovereign swaps widened by 2.9% (3 bps to 107).  

European Banking Monitor: Greek Swaps Tighten on Bailout Extension - chart2 sovereign CDS

European Banking Monitor: Greek Swaps Tighten on Bailout Extension - chart3 sovereign CDS

European Banking Monitor: Greek Swaps Tighten on Bailout Extension - 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 1 bps to 10 bps.

European Banking Monitor: Greek Swaps Tighten on Bailout Extension - chart5 euriobor OIS Spread

Matthew Hedrick

Associate

Ben Ryan

Analyst