All eyes still on European bank funding needs

European bank funding concerns remain front and center and what banks need refinancing thru yr end and who’s ok are under the microscope. The iTRAXX euro financial 5 yr CDS is up 12 bps to a new high at 245 bps. US$ 3 mo LIBOR is at 30 bps for the 1st time since April. 3 mo Euribor/OIS spread is at the high of the week but its all due to a drop in OIS rather than a rise in Euribor rates. The euro 3 mo basis swap is wider by 3 bps to also the high of the week. Spanish and Italian bonds are quiet again thanks to ECB buying but what happens when they stop? Greek 2 yr note yields are spiking to near highs as Finland’s deal to get collateral from Greece in return for funds is causing more EU countries to say ‘me too’ which threatens getting their bailout deal done. While the possibility of a eurobond is still a ways off, EU economic commissioner Oli Rehn said they would draft legislation for it. It still though comes down to the decision of the Germans and whether they want to be the sugar daddy for the EU in order to save it in its current form. With gold at a another record high, the S&P 500 is now 15% below the March ’09 low in gold terms and lower by 71% from the Oct ’07 S&P 500 record high. I continue to make this analysis because gold is money, not a commodity.

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