Thursday, July 22, 2010

European Stress Tests and Bond Spreads

by Bill McBride on 7/22/2010 06:04:00 PM

Tomorrow the Committee of European Banking Supervisors (CEBS) will release the stress test results for 91 European Banks.

The results will be released at 6:00 PM CEST (Central European Summer Time). That would be noon ET, although a few reports have suggested earlier release times (perhaps time conversion problems - something I'm familiar with).

Here is the press release on timing:

The results of the stress test will be released, both on an aggregated and on a bank-by-bank basis, on 23 July 2010, starting at 18.00 hrs CEST.

At 18.00 hrs CEST, CEBS will publish on its website the results of the exercise on an aggregated basis, in the form of a summary report, accompanied by a press release presenting the main conclusions as regards the resilience of the EU banking sector.

From 18.00 hrs CEST, the banks' individual results of the exercise will be published by banks and/or their national supervisory authorities, on their respective websites.

A summary of the 91 bank-by-bank results, sorted by country, will be republished on CEBS’s website with links to the websites of the participating national authorities, foreseen around 18.30 hrs CET.

A restricted press conference will be held at CEBS’s premises in London at 19:00 hrs CEST. Invitations will be sent separately. A broadcast of the press conference will be available via CEBS’s website.
In advance, here is a look at European bond spreads from the Atlanta Fed weekly Financial Highlights released today (graph as of July 21st):

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

From the Atlanta Fed:
Peripheral European bond spreads (over German bonds) have declined from recent highs but remain extremely elevated.

Since the June FOMC meeting, the 10-year Greece-to-German bond spread has narrowed by nearly 40 basis points (bps) (from 8.01% to 7.62%) through July 20. Other European peripherals’ spreads have also narrowed, with Portugal lower by 25 bps over the period and Spain 24 bps lower.
Note: The Atlanta Fed data is a couple days old. Nemo has links to the current data on the sidebar of his site.

Here are the spreads for the 10-year relative to the German bonds:
CountrySpreads July 22ndSpreads July 7thSpreads June 16thSpreads June 2nd
Greece7.75%7.64%6.40%5.03%
Portugal2.88%2.75%2.74%1.95%
Ireland2.77%2.62%2.83%2.19%
Spain1.7%2.06%2.09%1.62%
With the exception of Spain, the spreads have widened a little over the last couple of weeks.