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The European Bank Credit Panic is Fizzling Out 

March 2, 2016

Mike Bird, The Wall Street Journal

The market’s recent wobble over the credit risk posed by European banks seems to be vanishing about as quickly as it came.

The cost to investors of protecting themselves against a default has fallen a long way from its peak in the first half of February, back towards the lower levels recorded for most of last year.

A month ago, some analysts were raising concerns about credit risk in European banks. At that point, the iTraxx Senior Financial index, which tracks CDS prices across the European banking sector, had barely risen.

In comparison, European bank stocks had been absolutely hammered, falling back to levels previously seen in 2012 as the euro crisis was coming to a close.

In February, credit risk quickly picked up, with the cost of CDS rising 50% from the end of January to peak at 138.98 at the close of European markets on Feb. 11. That means that it would cost €138,980 up front to insure €10 million of European bank debt, up from €91,550 on Jan. 29.

Since mid February, things seem to have come off the boil, and bank stocks have recovered a little. The banking sub index of the Stoxx Europe 600 has risen by over 12% from the close on February 11 to March 1. Read more

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