According to S&P Market Intelligence data, the cost of credit default swaps for Deutsche Bank – Germany’s largest bank – hit a four-year high today. This comes as shares in the bank have fallen by 20% this month. Credit default swaps are a form of insurance for bondholders
European banks’ shares continued to decline on Friday, with Deutsche Bank falling by more than 13% on the German Xerta exchange.
Despite policymakers’ efforts to reassure investors about the sector’s health, a series of failures on both sides of the Atlantic has left investors nervous, leading to renewed volatility. In premarket trading, Deutsche Bank shares fell by over 7% in New York.
OUCH! Deutsche Bank's credit default swaps, which represent insurance of its bondholders against a potential default, spike as banking doom is back in Europe. Markets price 31% default probability for DB sub-bonds and 16% for senior DB paper. pic.twitter.com/APrSRh9yVb
— Holger Zschaepitz (@Schuldensuehner) March 24, 2023
This decline followed a surge in the cost of credit default swaps (CDS) for several major European banks, including Deutsche Bank. On Thursday, Deutsche Bank’s pricing for CDS jumped to 173 basis points from 142 basis points the day before, which is a form of insurance for bondholders against the company’s default.
The AT1 bonds of Deutsche Bank, an asset class that made headlines this week due to Credit Suisse’s controversial write-down of its AT1s as part of the UBS rescue deal, also sold off sharply. Reports suggested that several other European banks would suffer significant losses from the AT1 wipeout.
CDS pricing for other top European banks also increased.
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