European Banking Monitor: Swaps Tighten, Greece Kicks the Can

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 among European banks last week.  The median change was -8 bps. Greek banks led the move with tightening between -240 bps and -991 bps as further progress was made with the country's recovery plan; Germany's lower house of parliament on Friday approved the bailout extension that Eurozone finance ministers had agreed on the week before.

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart1 financials CDS

Sovereign CDS – Sovereign swaps mostly tightened over last week. Portuguese sovereign swaps tightened by -19.8% (-33 bps to 135 ) and Italian sovereign swaps widened by 15 bps to 110. Investors' sentiment was boosted by positive progress in Greece with Germany approving the four-month bailout extension.

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart2 sovereign CDS

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart3 sovereign CDS

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart4 sovereign CDSS

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 1 bps to 11 bps.

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart5 euribor OIS spread

Matthew Hedrick

Associate

Ben Ryan

Analyst