Risk of contagion continues to decrease

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In Euroland, summer rest begins. Following the European elections and the filling of government positions in the EU, Italy has also recently brought some relief. This is reflected in the Euro Break-up Index, which at 8.9 points once again falls below the 10 percent threshold. The easing is even more visible in the index, which measures the risk of contagion. This one marks a new three-year low.


The summer slump on the European political stage can also be felt in the EBI. The rapid agreement in poker on the appointment of EU and ECB leaders has led to a slight smoothing of the worries among investors about the Euro zone. This can be seen in many ways: On the one hand, the Euro Break-up Index is once again moving in the single-digit range, thus oscillating unobtrusively in its narrow range between 7.9 and 10.5 points, which it formed in 2019. The temporary hint of a renewed political escalation in Italy also seems to have vanished, with the subindex for Italy falling back from 8.2 points to 6.7 points.

sentix Euro Break-up Index: Contagion Risk

sentix Euro Break-up Index: Contagion Risk

Even more striking is the decline in the index, which measures the risk of contagion from potential exit candidates from the euro zone. The index drops to a three-year low of 29.2 points. This makes the danger of a leapfrogging of exit risks to other countries less likely, which should therefore also further favour the convergence of bond yields on the euro government bond markets.

Background

The sentix Euro Breakup Index is published on a monthly basis and was launched in June 2012. Its poll is running for two days around the fourth Friday of each month. Results are regularly published on the following Tuesday morning. Survey participants may choose up to three euro-zone member states of which they think they will quit the currency union within the next twelve months. Further details on the sentix Euro Breakup Index can be found on http://ebr.sentix.de.

This month’s reading of 8,9% means that currently, this percentage of all surveyed investors expect the euro to break up within the next twelve months. The EBI has reached its high at 73% in July 2012 and touched its low at 6.3% in April, 2018.

The current poll in which about 1.000 institutional and retail investors participated was conducted from July 25th to July 27th, 2019.

 

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