>Greece,Spain,Italy Portugal Banks facing heat (DANSKE MARKETS)

Summary:
• The decoupling between banks and corporates continues on the back of escalating market fears regarding Greece.

Market comment
In the last few days the Greek situation has spiralled out of control, with Greek treasury spreads reaching new highs relative to Bunds. The latest widening came after it was revealed that there was yet another negative revision of the 2009 deficit number (to 13.6%, with Eurostat warning that it may be even higher). It is hard to guess on the outcome of the ongoing problems, but in the short term Greece should have access to financing through the combined EU/IMF loan package that was agreed upon last week.

The spill-over to Spain, Italy and Portugal was significant and Portuguese banks in particular felt the heat, with senior bank spreads widening by some 50-100bp in the long end. As ever when the focus turns to sovereign debt problems, non-financials have outperformed financials in the credit market. The difference between the two indices is now at its widest level ever.

Currently, iTraxx Europe trades at 86bp while Crossover is at 420bp. Cash spreads have held up reasonably well compared to CDS, although the Tier 1 market has given up a little after performing strongly for a long time. In our view, any substantial widening in both non-financials and subordinated financials, in names not directly exposed to Southern Europe, is a buying opportunity. Naturally, the primary market has been quiet during the week due to the weakness in the market.

To read the full report: CREDIT UPDATE