Credit Risk Indicators Fall as Greek Plan Fans Deal Optimism

  • Investment-grade corporate credit risk drops most in two years
  • Proposals may lead to Agreement this week, Dijsselbloem says
Euro FRA/OIS spread

The euro FRA/OIS spread. A lower spread indicates banks are paying less to borrow in euros.

Source: Bloomberg

Indicators of credit risk tumbled across the euro area after new Greek financial proposals raised expectations the country may be able to secure an aid deal and avoid a default.

A gauge of investment-grade European corporate credit risk fell the most in two years, and Greek company bonds rallied. A measure of how much banks expect to pay to borrow in euros, known as the FRA/OIS spread, plunged as much as 21 percent.

Greece’s new proposals are a positive step that could pave the way to a deal this week, Dutch Finance Minister Jeroen Dijsselbloem said after presiding over talks in Brussels on Monday. Still, creditors will need to undertake a full appraisal before agreeing to a plan that could keep Greece in the euro and end months of deadlock.

“I am pleasantly surprised by the movement toward a deal today, but many things could still stop a deal being agreed.” said Chris Bowie, a London-based portfolio manager at Twentyfour Asset Management LLP, which oversees 4.5 billion pounds ($7.1 billion). “The gut feeling is we get a deal that takes Greece to the end of the year,” he said.

The Markit iTraxx Europe Index, which tracks credit-default swaps on investment-grade companies, fell eight basis points to 67 basis points as of 4:22 p.m. in London.

Further Talks

The Markit iTraxx Europe index tracks credit default swaps on 125 investment-grade European companies.

The Markit iTraxx Europe index tracks credit default swaps on 125 investment-grade European companies. A lower level indicates investors are paying less to purchase default protection on such companies.

Source: Bloomberg

Greece’s creditors are yet to full assess the country’s proposals because the plan was only submitted early on Monday ahead of a meeting of euro-area finance ministers, Dijsselbloem said. Michael Noonan, the Irish finance minister, said he expected ministers to have to meet again on Thursday.

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