The wolf pack is back

14 May 2010 By Neil Unmack Follow @unmack1

A week after Europe’s 750 bln euro rescue averted financial Armageddon, equities, interbank rates and credit default spreads are showing new signs of strain. A return to the prebailout trauma isn’t imminent. But high deficits and the need for austerity will keep markets choppy.

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The spread between Euribor and overnight indexed swap spreads, a measure of banking sector stress, reached 34 basis points on May 14, up from its low of 28 basis points earlier this week. The spread was as high as 45 basis points on May 7, before the euro zone governments agreed a 750 billion euro rescue package.

The Markit iTraxx SovX index of default swaps tied to western European governments traded 10 basis points wider at about 122 basis points. Though the spread is far below the high of 175 basis points before the euro zone bailout, it remains double the level in midMarch.

The FTSEurofirst 300 index of top European shares was down 2 percent by midday on May 14. The index reached a high of 1115.03 on April 16, and fell as low as 957.73 on May 7.

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