European Liquidity Update

While bank CEOs across Europe (and the US) continue to deny-deny-deny that they have any liquidity issues, the markets seem to be calling their bluff (once bitten twice shy?). EURIBOR-OIS has just reached back to March 2009 levels, 3 month EUR-USD basis swap is almost back to late 2008 lows at -106bps, and while for once the ECB's liquidity facility was not taken advantage of in size (only EUR179mm), counterparty risk is clearly on the mind of traders as CDS curves invert and Senior Financials jump 15bps to 304bps (and Subordinated +36 to 538bps!).

Chart: Bloomberg


And LIBOR components continue to disperse and rise - though who is actually lending to whom over there is anyone's guess...