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BNP: A Fine Mess

14 May 2014 by HCM

The 5 year risk premia of financial companies have been pushed agressively lower since the roll in March, trading down from 96bps to 70bps on average in Europe. Over the last week alone, they decreased almost by 10%. Peripheral banks have led the charge tighter, while reinsurers and insurers whose 5 year CDS are already trading at tight levels in absolute terms have been moving a bit slower. In other words, the tightening of the 5 year CDS was largely a function of the spread. There was one exception though: BNP (BNP Paribas SA). It was following the same path as the others until yesterday, when it was rumoured that the US administration is seeking $3.5bln from the French bank against the $1.1bln they have set aside for litigation. On the back of that, the risk premium gave back all its gain, which translates into a big candle on the left hand side.