sentix Euro Break-up Index News

On this page we provide information about the latest development of the sentix Euro break-up Index. This indicator shows over time, how likely individual and institutional investors rate the probabilty of a breakup of the euro area (leaving at least one country) within 12 months time. Also it reflects which countries are particularly affected.

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“Grexit” back on investors’ minds

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In June, the sentix Euro Break-up Index (EBI) drops from 21.85% to now 19.95%. With its third decrease in a row the indicator now almost reaches its February reading. The small decline can be explained with fading sorrows concerning Slovenia and Cyprus. For these two countries the national EBI display the most pronounced drops. But this month there is also a formerly well-known exit candidate coming back to investors' minds.

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Divided periphery

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The sentix Euro Break-up Index (EBI) drops again in May, from 24.4% to now 21.9%. This is its second decrease in a row. In February and March, the index had risen against the background of the unclear outcome of the Italian elections and the irritating financial rescue of Cyprus. The current EBI is the third lowest in its one-year history. Only in January and February of this year its readings were lower.

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Euro pessimism fades

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The sentix Euro Breakup Index (EBI) for April falls from 41.1% to 24.4%. In the two previous months the EBI had increased as the outcome of the Italian elections and the Cypriot bail-out had rendered investors more pessimistic. As these two topics have become less scary in the meantime, investors have again become more confident concerning the future of the common currency: the current EBI value is the third lowest since the inception of the indicator in June 2012. Only in January and February the EBI stood lower.

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Cyprus and the other Euro angst

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The tiny island nation of Cyprus holds the euro zone in breathing. The impending collapse of the Mediterranean island has unsettled investors and from their perspective increases the likelihood of a breakup of the euro zone. The sentix euro break-up index, which measures that probability rises to 41.05% (19.25% for the previous month). This is the highest level since late September 2012. The survey was taken from March 22nd to March 23rd, 2013 and attended by some 1,000 investors.

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Cyprus and Italy stop EBI downtrend

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The sentix Euro Breakup Index (EBI) for February increases from 17.15% to 19.25%. Consequently, the downtrend of the index is stopped, at least for the moment. At the same time, the current EBI value is still the second lowest since the indicator was launched in June 2012.

A reading of 19,25% means that about one in five investors expects at least one country to leave the euro zone within the next twelve months. The EBI had reached a high in July 2012 with 73%. The current survey was conducted from February 21st to February 23rd, 2013. 970 investors took part in the internet poll.

That the EBI has not fallen further (as in the six previous months) is mainly due to the investors' assessments of Cyprus and Italy. The EBI for Cyprus rises against the background of unresolved banking problems from 7.5% to 10.9%. For Italy the EBI climbs – just before the national elections – from 0.6% to 3.0%. That is the second highest reading for Italy since the EBI's inception. Only in July 2012 the index stood higher (at 4.0%).

In addition, the indices for Greece and Spain rise slightly. Greece remains the country for which most investors expect a euro exit within the next twelve months. Its EBI now stands at 15.3% (after 13.9%).

The positive surprise of the month is Portugal. Its EBI decreases for the seventh time in a row (from 1.5% to 1.4%). As a result, Portugal drops out of the list of those five countries with the highest EBI readings. It is replaced by Italy.

Among the countries with the five highest EBI readings remain the two core countries Germany and Finland. For both euro members the February readings rise slightly to 2.0% and 1.5%, respectively.

The February results of the sentix Euro Breakup Index show that at the current juncture the tensions surrounding the euro are not easing anymore. Reasons are probably the banking problems in Cyprus and the elections in Italy. Cyprus seems to have the potential to turn into a second Greece, although its present EBI is still lower than Greece's EBI ever was.

This month one could already observe investors' nervousness concerning political instabilities in Italy and Spain when looking at financial markets: Spreads for bonds from the euro periphery (over German Bunds) have stopped their downtrend. The February-EBI for Italy now even points to much higher spreads for Italian bonds than can be currently observed. If one looks at the history of the EBI, its current reading is indicating spread levels of around 450 basis points (bp) for 10-year bonds. This is not compatible with the actual ones of around 290 bp. But one has to bear in mind that the higher spreads in the past resulted from a much more euro hostile environment in general. Consequently, a comparison makes only partly sense.

Italian spreads over Bunds and Italian EBIThe divergence between the actual and the theoretical spread, given a concrete EBI, may also result from the assessment of private investors. Private investors this month are much more pessimistic than their institutional peers regarding Italy (EBI for private investors: 4.5%, EBI for institutional investors: 1.6%). But it is institutional investors who have the greater weight for spread developments.

Considering this, the February-EBI has to be understood as a kind of warning: While the euro zone experiences quite positive dynamics at the moment (reflected in other sentix data like the sentix strategic bias for stocks or the sentix eco indices), the situation remains fragile.

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