Counterparty Risk Soars To Highest In Over A Year, European CDS Sliding, LIBOR-OIS Spikes, High Yield Spreads Blowing Out, Overnight ECB Lending Soars

Tyler Durden's picture

We wish we had some good news to report this morning.... But we don't.

Well, there is one piece of good news - the ECB reported earlier that the bank that scrambled last week, as a result of a dollar funding squeeze, to find $500 million from the ECB at punitive rates (which sent the market tumbling the next day after we reported it) did not need this money today. However, more than offsetting this was a surge in overnight borrowing under the ECB's just as punitive Marginal Lending Facility, which yesterday saw a borrowing surge from €555 million to €2822 million, the highest since August 10, when it hit €4058 million. This Eurobank scramble for general cash was not lost on the market which as noted before already sent bank CDS to record wide levels, and additionally pushing 3-month USD Libor - the broadest indication of bank counterparty risk - to the highest level in 12 months, with the BBA printing at 0.31428%, up from 0.31178%: the highest since precisely a year ago. This is also the longest stretch of gains since November 2005. Related, the dollar OIS spread of 22.93 bps was the highest since August 9, 2010. There is no sign this will slow. Shifting to the broader market, the BAML High Yield Master Index shows that while retarded stocks may or may not do something or another, high yield is a different story entirely. Per Bloomberg, spreads widened to +746 vs +732 the previous day, the widest spread since December 2, 2009 when it was +749, according to the BAML High Yield Master II Index. Riskiest bonds, rated triple-C or under, widened to +1228 from +1203 the previous day, the widest since October 16, 2009 when it was +1232. Spreads for low beta BB rated bonds widened to +569 vs +557 the previous day, the widest since December 1, 2009 when it was +575. Lastly, the table below of Sovereign European CDS says the remainder of the story. We now are skeptical Europe can survive through the end of the year, especially when we finally find the time to finally present some rather unpleasant Dexia news.

ITALY               375/385    0      
IRELAND          830/882    0      
GREECE            46.5/49   +0.5   
SPAIN              373/382    -2     
PORT            1010/1061   +20    
BELGIUM         252/264    +2     
FRANCE           160/167    -3     
AUSTRIA          121/130   -2  
ENG                  83/87       0      
GERM               84/87     +1