European Credit Markets – No ‘Obvious End to Crisis’ [ActingMan]
August 15, 2012 Leave a comment
Is the Correction Over?
Below is our customary update of credit market charts: CDS on various sovereign debtors and banks, bond yields, euro basis swaps and a few other charts. Charts and price scales are color coded (readers should keep the different price scales in mind when assessing 4-in-1 charts). Where necessary we have provided a legend for the color coding below the charts. Prices are as of Monday’s close.
The ‘Draghi effect’ has worn off a little bit, as many CDS and bond yields in the euro area and the markets most closely correlated with it (CEE and Mid East) have begun to bounce slightly after the ECB-induced across-the-board retreat. The month of September is coming closer and with it, uncertainty will no doubt increase. Spain is not likely to go forward with a bailout application before the German constitutional court has delivered its verdict on the ESM ratification (currently scheduled for September 12). The outcome of the court’s deliberations is most likely going to be some sort of compromise – we doubt it will torpedo the ESM – but it seems likely that the ESM’s funding and use will be bound to conditions so as to avoid any collision with Germany’s constitution and the European treaties. The fact that the court takes so much time to debate the issue is of course a direct result of the deteriorating social mood in the euro area, and the verdict is likely to reflect it as well.