05 June 2015

ESMA issues Q1 risk dashboard for securities markets

Contagion, liquidity, and credit risk remained high but stable while market risk increased after having partially materialised already in the previous quarter.

The weak economic prospects, together with an intensified geopolitical uncertainty both inside and outside the EU led to an increase in volatility for most markets, signalling increasing market concerns. Going forward, key risk concerns in the EU include high asset valuations driven by search-for-yield, weak economic prospects, resurgence of public debt policy issues in a number of EU Members States, although to various degrees, and economic and geopolitical uncertainty in the EU’s vicinity.

Growth prospects continued to be subdued at the global level and especially in the EU, where political developments in some member states raised concerns over the commitment to further structural reforms. Resurging debt sustainability concerns led to an increased fragility in sovereign debt markets, as reflected by increased bid-ask spreads on sovereign bonds, as well as a sharp increase in the sovereign yield of one vulnerable country. The concerns can be associated with increasingly volatile valuations for sovereign bond. Overall, these valuations of sovereign bonds remained relatively high, signalling low market pricing of risk.

Credit risk remained at high levels in 1Q15. Major steps were taken in order to ensure and increase soundness and stability in the banking system during the previous quarters, as reflected by the reduced divergence in maturity profiles across banking sectors in the different member states. Net sovereign debt issuance declined in most countries, continuing the recent trend.

Debt issuance increased at the beginning of 2015 for corporate bonds and covered bonds. Debt maturity lengthened slightly across sectors, while remaining constant in the industrial sector both for core and peripheral countries. Developments in redemption profiles were mixed, decreasing in the short term for banks while increasing for financials. Redemption needs increased in the banking sector for medium term maturities.

Full press release

Risk Dashboard 2015

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