Report
What is the reason for the fragility of euro-zone bank bond and equity markets?
In th e recent period there have been very drastic movements in risk premia on euro-zone bank bonds and i n the share prices of euro-zone banks. What is the reason for this fragility of euro-zone bank bond and equity markets, when default rates are low, the level of non-performing loans is declining, and banks have substantial capital? Plausible explanations are as follows: The correlation between sovereign risk and banking risk means that banks’ situation deteriorates whenever there is pressure on government bonds; The yield curve is flat and is expected to remain flat, and this hurts banks' profit margins; The banks' profitability is low, due to the flat yield curve and rising risk premia on their bond debt, when growth is now slowing.
Provider
Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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