Monitor Euro debt crisis watch

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1 Investment Research General Market Conditions May Monitor Euro debt crisis watch The EURbn aid deal between Greece and the Eurogroup and IMF has brought some relief to markets. Especially the short maturity Greek bonds are rallying with a clear rub-off effect on other peripherals. The loan facility is by no means the end of the crisis, but the nature of the crisis is changing from short-term liquidity to longer-term solvency at least for Greece. One big question is if the liquidity concerns will move on to the next weakest link in line, Portugal. Another interesting market movement on the back of the debt crisis is the widening of the expected FRA/OIS spreads not only in Euroland but also in the US. This is also evident in the -year swap spreads. For more on the latest developments on a number of different markets, see the graphs on the following pages. We aim to update this publication regularly as the crisis unfolds depending on market movements. Sovereign spreads in PIIGS sky-rocket Watch list for the coming days European Commission to publish spring forecast on eurozone countries (May ) General strikes in Greece (May ) Spanish auction, Y, EUR.bn expected (May ) ECB meeting (May ) Expected approval of package in German Parliament (May 7) Extraordinary euro group meeting (May 7) IMF board approval of package and more details on the conditionality expected (during the week) Germany Spain Italy Portugal Ireland Greece 9 9 Feb Apr Source: Ecowin and Danske Markets Senior Analyst Jesper Fischer-Nielsen + jfis@danskeban.dk Senior Analyst Peter Possing Andersen pa@danskebank.dk

2 Contagion to other PIIGS Greece vs. German sovereign yields Portuguese, Irish, Italian, Spanish vs. German sovereign yields 9 Nov 9 9 Germany Feb Greece Mar Apr Germany Spain Italy Portugal Ireland 9 9 Feb Apr PIIGS vs. German main equity indices PIIGS vs. German financial equity indices Index Index Index Germany Spain Index Italy Portugal Ireland Greece DAX (Germany) IBEX (Spain) FTSEMIB (Italy) PSI (Portugal) ISEQ (Ireland) FTASE (Greece) 9 9 Feb Apr 9 9 Feb Apr Source: Bloomberg, Ecowin and Danske Markets PIIGS vs. German sovereign yr CDS 9 7 Germany Italy Ireland 9 9 Feb Apr Spain Portugal Greece 9 7 PIIGS vs. German Covered bond spreads Asset Swp Spd iboxx Covered iboxx France Covered iboxx Germany Covered iboxx Spain Covered iboxx Portugal Covered iboxx Ireland Covered Nov Feb- Mar- Apr- May- Source: Danske Markets May

3 Broader contagion European money market spread s x9 FRA EONIA Spread s M Euribor Eonia spread 9 9 Feb Apr Itrax CDS yr indices 9 7 Itraxx main Senior financial Sovereign 9 9 Feb Apr 9 7 US money market spread Selected Euroland Bank CDS year senior s FRA/OIS spread nd contract M USD Libor OIS spread s Banco Espirito Santo Unicredito Barcleys BBVA Santander BNP 9 9 Feb Apr -9 Nov Feb- Mar- Apr- Source: Danske Markets May

4 ASW spreads on the st Schatz, Bobl and Bund futures year and year US swap spreads st Schatz asw st Bobl asw year st Bund asw /9 /9 Feb/ Apr/ year - - /9 /9 Feb/ Apr/ - - Global equities Implied equity vol Index (7//9=) S&P Global. EURO STOXX vol index S&P Global Financials Vix Vol index Source: Ecowin and Danske Markets EUR/USD and USD/JPY Implied currency vol USD/JPY >> << EUR/USD USD/JPY implied vol m 9 EUR/USD implied vol m 9 9 May

5 Euro associated currencies EMBI spread = 9 = TRY HUF PLN EMBI spread 9 9 Feb Apr MY EUR normalised Swaption volatility YY EUR normalised Swaption volatility Feb Apr 9 9 Feb Apr Danske Markets Global risk index (short period) Danske Markets Global risk index (long period).. -. Indeks Static risk index standardized Indeks.. -. Index Static risk index standardized Index Source: Ecowin, Bloomberg & Danske Markets Source: Ecowin, Bloomberg & Danske Markets May

6 Disclosure This research report has been prepared by Danske Research, which is part of Danske Markets, a division of Danske Bank. Danske Bank is under supervision by the Danish Financial Supervisory Authority. The authors of this research report are Jesper Fischer-Nielsen, Senior Analyst and Peter Possing Andersen, Senior Analyst. Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high quality research based on research objectivity and independence. These procedures are documented in the Danske Bank Research Policy. Employees within the Danske Bank Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and to the Compliance Officer. Danske Bank Research departments are organised independently from and do not report to other Danske Bank business areas. Research analysts are remunerated in part based on the over-all profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Danske Bank research reports are prepared in accordance with the Danish Society of Investment Professionals Ethical rules and the Recommendations of the Danish Securities Dealers Association. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. First date of publication Please see the front page of this research report for the first date of publication. Price-related data is calculated using the closing price from the day before publication. Disclaimer This publication has been prepared by Danske Markets for information purposes only. It has been prepared independently, solely from publicly available information and does not take into account the views of Danske Bank s internal credit department. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. The Equity and Corporate Bonds analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for retail customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S. Danske Bank A/S is authorized by the Danish Financial Supervisory Authority and is subject to provisions of relevant regulators in all other jurisdictions where Danske Bank A/S conducts operations. Moreover Danske Bank A/S is subject to limited regulation by the Financial Services Authority (UK). Details on the extent of our regulation by the Financial Services Authority are available from us on request. Copyright (C) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission. May