Euro Area Credit Market Charts

Below is our customary collection updates of the usual suspects: CDS spreads, bond yields, euro basis swaps and several other charts. Both charts and price scales are color coded (readers should keep the different scales in mind when assessing 4-in-1 charts). CDS prices are as of Friday's close, bond yields and basis swaps  are as of today's close (Bloomberg updates of CDS are always a bit late).

 

They Don't Like Turkey, or France … or Japan

One thing that is increasingly obvious is that someone doesn't like the outlook on Japan's and Turkey's creditworthiness. Turkey of course can be regarded as part of the wider European periphery. The sudden jump in CDS on Turkish debt is no doubt an ill omen. Since Middle Eastern sovereign CDS are rising as well, it seems possible that the growing tensions between the West and Iran are playing into this.

However, the enormous rise in CDS on Japan that began after the new budget was announced is infinitely more worrisome. This could well become the first test of the today so popular neo-Keynesian/chartalist notion that as long as you have your own printing press, nothing untoward can happen to your debt (this assertion is so bizarre one has to occasionally say it out loud or see it in print). Somehow we have a feeling that Knappism (Georg Friedrich Knapp was the author of the 'State Theory of Money' on which the chartalist fantasies are based)  is going to eventually fail worldwide.

Meanwhile, the improvement in euro basis swaps continues, a sign that the scramble for dollar funding is easing a bit – dollar longs might want to keep this in mind. On the other hand, CDS on euro-land banks have resumed their uptrend.

 


 

5 year CDS on Portugal, Italy, Greece and Spain – the race back up is on – click for better resolution.

 


 

5 year CDS on France, Belgium, Ireland and Japan – CDS spreads on France and Japan are almost back at their previous all time highs. – click for better resolution.

 


 

5 year CDS on Bulgaria, Croatia, Hungary and Austria – Austria and Hungary finally see a dip after Viktor Orban's climbdown late last week – click for better resolution.

 


 

5 year CDS on Latvia, Lithuania, Slovenia and Slovakia – somehow, these charts don't strike us as bearish. In other words, these CDS spreads are probably about to go higher.  Experience has shown that technical analysis works surprisingly well with CDS – click for better resolution.

 


 

5 year CDS on Romania, Poland,  Lithuania and Estonia – the market is finally noticing that Estonia is the fiscally most solid country in the euro area at the moment – click for better resolution.

 


 

Midnight Express … CDS on Turkey take off and reach a new all time high. The remaining CDS spreads on this chart, i.e. Those of Middle Eastern nations are also doing what they were expected to do in view of the ascending triangle – they're going higher. It could be that the tensions with Iran have something to do with that – click for better resolution.

 


 

Three month, one year, three year and five year euro basis swaps – improving further – click for better resolution.

 


 

Our proprietary unweighted index of 5 year CDS on eight major European banks (BBVA, Banca Monte dei Paschi di Siena, Societe Generale, BNP Paribas, Deutsche Bank, UBS, Intesa Sanpaolo and Unicredito) – by contrast, this index of bank CDS is rising again with some gusto. Quite possibly the recent Unicredito capital raising disaster has something to do with this– click for better resolution.

 


 

5 year CDS on two big Austrian banks, Raiffeisen and Erstebank. The Hungarian malaise continues to reflect on these. Looks bullish, unfortunately – click for better resolution. 

 


 

10 year government bond yields of Italy, Greece, Portugal and Spain. A small improvement in Spain's yields today is overshadowed by Italian 10 year yields stubbornly remaining above the 7% barrier. Should we mention? That looks like a new all time high – click for better resolution.

 


 

The 9-year Irish government bond yield, the 2 year Greek note yield, and the yield on UK gilts and the Austrian 10 year government bond. Austrian yields coming back in a bit following the Hungarian scare, while Ireland is clearly back on the improvement track. The Greek 2 year note yield once again goes parabolic and sits at a new all time high. When this yield first stormed above 20% in April of 2011 everybody thought that was extreme. Now it's at 157% – click for better resolution.

 


 

Hungary back from the Brink

 


 

Hungary's 2 year note yield dips following Orban's seeming Walk to Canossa (a European historical reference for those who don't know about it: it essentially means eating humble pie. It refers to Henry IV's journey to Canossa in 1077 a.d., clad only in his hair-shirt,  to meet pope Gregory VII and receive his absolution and blessing. He got the former but not the latter) – click for better resolution.

 


 

Hungary's 10 year note yield, a big dip. The crisis seems to have been postponed somewhat – click for better resolution.

 


 

Hungary's 10-2 spread – it came close to inversion, but stopped short by about 50 basis points – click for better resolution.

 


 

5 year CDS on the debt of Australia's 'Big Four' banks, rising a little bit late last week – click for better resolution.

 


 

 

Charts by: Bloomberg


 

 

 

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