Thursday, June 10, 2010

Update on European Bond and CDS Spreads

by Bill McBride on 6/10/2010 05:54:00 PM

Here are two graphs from the Atlanta Fed weekly Financial Highlights released today (graph as of June 9th):

UPDATE: As I noted, this data is as of June 9th (or earlier). The spreads narrowed today. Nemo has links to the data on the sidebar of his site. "The 10-year Obligacion del Estado fell to 4.48%, for a spread of 187 bps ... [lower than the] 211 bps the Atlanta Fed cited."

Euro Bond Spreads Click on graph for larger image in new window.

From the Atlanta Fed:

Following a decline after the initial reports of the EU/IMF €750 billion package and ECB bond purchases, peripheral euro area bond spreads (over German bonds) have widened.

In particular, the bond spreads for Italy and Spain have widened the most relative to their levels before the rescue package was unveiled.

After initially declining four weeks ago, sovereign debt spreads have begun widening for peripheral euro area countries. As of June 9, the 10-year bond spread stands at 554 basis points (bps) for Greece, 258 bps for Ireland, 265 bps for Portugal, and 211 bps for Spain.

The spread to Italian bonds has increased 76 bps since May 11, from 1% to 1.75%, while Portuguese bond spreads are 112 bps higher during the same period. U.K. bond spreads are essentially unchanged.
Euro CDS Spreads
Similarly, CDS spreads have widened after the initial response to the stabilization package.
After declining following the policy response, the bond and CDS spreads have resumed their steady climb.

Is this what IMF Managing Director Dominique Strauss-Kahn meant by "contained"?