Investing.com - Financial Markets Worldwide

Monitor: Euro Debt Crisis Watch

ByDanske Markets
Published 11/21/2011, 11:44 AM
Updated 05/14/2017, 06:45 AM
EUR/USD
-0.18%
FTNMX301010
1.86%

This monitor was introduced in the spring of 2010 to watch developments in local and global financial markets, in order to keep track of the contagion from the European debt crisis. This piece provides an updated overview of the most important markets.

The contagion from the euro crisis is now spreading to the very core of the eurozone countries. France and Austria have been seeing a significant further selloff. Lately, even the best among the remaining AAA-rated countries in the eurozone have been losing ground to Germany. Hence, Finland and the Netherlands underperformed too.

It now seems that the market is attaching not only a credit premium between the  individual countries, but also a credit premium to the euro itself.

The funding stress has been intensifying after Fitch warned that the European debt crisis could turn into a bigger problem for the US banks. The USD fixings have been moving higher and the market is pricing in a further worsening.

Euribor fixings are sticky and have moved higher over the past week, despite the recent cut from the ECB. This implies significant widening in the 3M Euribor/Eonia spread. Consequently, European swap rates have risen and swap spreads widened.

The EUR/USD cross currency basis swap has widened further as well. The 3M EUR/USD basis swap declined to -133bp despite backstop facilities being in place at lower costs.

Conditions are worsening in credit markets too – in both Europe and the US.

Global equity markets are under pressure today, but have in general held up recently. Stock market volatility and normalised volatility on interest rate swaptions have remained more stable recently.

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