7 Charts Showing The Lock Out Of European Capital Markets And The Surge In Counterparty Risk

It is not 2008. It is far worse. Unlike 3 years ago, the central banks were not all in on "bailing out the world" and thus actually had dry powder to do so, as they eventually did: where will the status quo go for a global bail out this time? Below we present 7 Bloomberg charts, following yesterday's indication of a liquidity lock out, showing all too well the surge in counterparty risk, but more importantly the lock out in European capital markets. To all those who thought that transferring ever more peripheral risk to the European core would have no consequences (sorry, it did: German CDS is wider than the UK for the first time ever), and did not hedge appropriately, our condolences.

First, overnight lending rates = counterparty risk... although we already knew this. Just see any of our CDS updates over the past month.

And 6 more charts: "Since July 15, investors have sought refuge in the ECB’s overnight deposit facility, which peaked at 1.45 trillion euros Aug. 8. Short-term funding stress also can be observed in the spread between 3-month USD Libor less the 3-month Euribor basis swaps, which has widened to negative 90 from negative 27 at the end of June. When this spread widens it increases the FRA-OIS spread, a sign of stress in European bank funding markets, further depressing the front end of Eurodollar futures contracts and intensifying pressure on EU banks."

Last, as a reminder, tomorrow we get an update on borrowings under the emergency punitive 7 day loan line from the ECB where last week we found one bank had borrowed $500 million in what is most obviously a dollar shortage, confirmed later by the resumption of Fed FX swap lines which do nothing but alleviate USD funding shortages.