• The EU, IMF and ECB relief measures has helped calm fears, but worries remain abundant. The crisis seems to have been “downgraded” from a full-blown global crisis to a more local European crisis. Pressure on the financial system in Euroland remains. Banks in Southern Europe are still having a hard time and the FRA/OIS spreads bounced wider again yesterday.
  • ECB has mainly been buying 0-3 year Greek, Portuguese and Irish bonds. So the buying has been concentrated in the weakest and smallest markets so far. This has resulted in a large narrowing of spreads between Italy and Spain on the one hand and Greece, Portugal and Ireland on the other. The 2-year Spanish yield rose 7bp yesterday as the 2-year Portuguese yield dropped 73bp taking the spread between the two to a measly 20bp.
  • What does the markets still fear?
    • The longer term solvency problems remains unsolved.
    • The macro economic consequences of the crisis and of the fiscal tightening.
    • Implementation risks. Will the measures be approved in parliaments and will governments deliver the needed tightening of fiscal policy?