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Takeaway: Greek Financials Swaps tighten ~15% on bailout negotiations.

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 mostly unchanged in Europe last week while Greek institutions finally tightened in unison given a positive development in bailout negotiations; Greece delivered a more detailed plan for its bailout to the International Monetary Fund on Wednesday.

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - chart1 financials CDS

Sovereign CDS – Sovereign swaps mostly tightened over last week on news of Greece delivering a more detailed bailout plan to the IMF.  Spanish sovereign swaps tightened the most, by -8 bps to 86, while Irish sovereign swaps widened nominally (+1 bp to 49).

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - chart2 sovereign CDS

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - chart3 sovereign CDS

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - 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 11 bps.

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - chart5 euribor OIS Spread

Matthew Hedrick

Associate

Ben Ryan

Analyst