CDS spreads in holding pattern as row delays eurozone deal


Credit default swap (CDS) spreads held steady across Europe today, despite a delay in negotiations between European politicians about how to shore up indebted sovereigns.

The delay is being chalked up to a dispute between German chancellor Angela Merkel and French president Nicolas Sarkozy. The two leaders are taking the lead in efforts to solve the sovereign debt crisis, but are reportedly struggling to agree on how to use the eurozone's existing bail-out vehicle, the European Financial Stability Facility (EFSF), and how big it should be. The only thing the two sides are reported to agree on is that there will be no agreement this weekend – talks will resume in Brussels on Sunday, possibly followed by another summit next Wednesday.

Although hopes of a breakthrough deal had been growing in recent weeks, credit default swap markets reacted calmly to news of the discord. Spain declined slightly from 384 basis points at close of play yesterday to 378bp at 2pm London time today. Spreads on Italy fell from 456bp to 441bp in the same period. French spreads fell 3bp to 186bp, while Germany narrowed from 92bp to 90bp.

European banks also enjoyed a stable day. Santander spreads ticked up slightly, from 314bp to 316bp, while Italy's UniCredit fell from 390bp to 385bp. Société Générale narrowed by 2bp to 318bp, and Deutsche Bank spreads dropped from 192bp to 189bp. UK banks also had a good day on the CDS market – Royal Bank of Scotland spreads moved from 355bp to 352bp, while Barclays narrowed by 5bp to 213bp.

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