• Southern European debt markets have entered panic mode. The purpose of this monitor is to watch developments in local and global financial markets to keep track of the contagion from the crisis. So far, local contagion to the other PIIGS (Portugal, Ireland, Italy, Greece, Spain) is evident, global contagion is limited.
    • There are evident signs that the crisis is spreading to other PIIGS sovereign debt markets. Beside Greece, Portugal is the hardest hit country with its sovereign yield and CDS reaching new highs. More concerning, the Portuguese covered bond market seems to be in big trouble, with spreads widening by 150bp over the past week.
    • Spain and Ireland are also hit, but to a lesser extent than Portugal. There is little doubt, though, that they are next in line. It is positive to see that the Irish CDS spread remains very low. Southern European banks are under pressure with CDS spreads wider.
    • EUR touched a cycle low vs. USD yesterday and the implied currency volatility is on the rise – but still much lower than during the financial crisis.
    • Although some broader contagion is evident elsewhere in global markets it remains modest. While the 3M EURIBOR – EONIA spread remains very narrow, the forward market is getting a bit nervous with the 6x9 FRA EOINIA spread moving wider.
    • Global equity markets have taken a hit and volatility is moving higher, but again the contagion remains relatively modest so far.
    • Eastern European currencies have weakened. The EMBI spread has widened a bit.