Euro Debt Crisis Watch

Watch list

• Formation of new government in Finland.
• Portuguese package to be prepared and presented mid-May.
• Portuguese general elections in June.
• Bank stress test to be published around mid-June.
• Details on enlargement of EFSF in June.

This monitor was introduced a year ago to watch developments in local and global financial markets and to keep track on the contagion from the European debt crisis. The following piece provides an updated overview of the most important markets.

At the moment there is very limited contagion in global markets from the debt crisis.

Greek bond yields have, however, soared as speculation over restructuring intensifies. While Irish and Portuguese yields have seen some contagion, there is currently no broader spill-over in European government debt markets. Thus, Spanish and Italian bond yields and CDS spreads remain fairly stable.

Global stock markets have advanced robustly and implied equity market volatility has declined. Furthermore, corporate credit spreads have narrowed, while overall financials have underperformed.

On FX markets the ongoing Greek debt restructuring talks have not capped the upside on EUR/USD, as the cross is pushed higher by expectations that the ECB will react more than the US Fed to rising commodity prices.

ECB has only made limited purchases of government bonds this year and as there have been some redemptions the accumulated bond government holdings from the Securities Market Programme have declined.