07.01.2011

AND NOW THE EURO SLUMPS – CRISIS BACK IN FULL FORCE (EuroIntelligence)

Yesterday, we noted that at least the euro was still trading within its $1.31-$1.31 Christmas period trading range, but overnight it slumped below $1.30. Our daily chart of 10-year bond spreads has proof to be a reliable crisis indicator, and it shows that investors’ nervousness is spread from Ireland, Greece and Portugal to Italy, Belgium and even France. The awful political news out of Belgium (see below) suggests that there is no government in sight, which means more instability, and a reduced likelihood of effective anti-crisis policies. Belgian 5-year CDS yesterday jumped to 240bp, and FT Alphaville reports that KBC, the Belgian bank, took charges of over $400m, as a result of its exposure to Ireland.

Western European government bonds are riskier than emerging-market debt for the first time, Bloomberg reports. The Markit iTraxx Index of credit- default swaps insuring the public debt of 15 Western European countries - including Germany, Greece and Portugal -  are  7bp higher than the Markit iTraxx Index linked to Romania, Turkey and Ukraine, according to data provider CMA.

Here are our tables. The distance of their position to the top of this news briefing has become a reliable metric of this crisis.

Bond spreads and forex  

10-year sovereign spreads (against 10 year German bunds)

			Previous Day Close	Yesterday’s Close	This morning
France			0.398	0.441	0.434
Italy			1.709	1.844	1.848
Spain			2.400	2.582	2.573
Portugal			3.828	4.214	4.108
Greece			9.885	9.912	9.85
Ireland			6.276	6.334	6.288
Belgium			1.018	1.172	1.173

Euro bilateral exchange rates:  

	€ at last Briefing	This morning
Dollar	+1.3148	+1.2988
Yen	+109.34	+108.44
Pound	+0.8469	+0.8416
Swiss Franc	+1.2706	+1.2542

Source: Thomson Reuters

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