Squeeze Out Residual Premia

“EMU policies and market Implications – we remain constructive on Euro area assets into year-end – looking at 2014, we expect market to increasingly price greater differentiation. (i) Amidst low interest rates and evidence that growth is picking up, we think that systemic risks will be kept in check and remain constructive on Euro area assets into year-end as investors squeeze out residual premia. (ii) But looking at 2014, we expect the market to increasingly price a greater differentiation of asset returns at least along two main dimensions. The first is between sovereign credit risk and financial credit risk, with the former outperforming as government creditors are preferred to those of banks. The second is between, on the one end, well capitalized and transparent financial institutions with a banking union strategy and, on the other end, the weaker and predominantly domestic players.” (Goldman Sachs)

Indicator of Systematic Stress

Indicator of Systematic Stress (1)

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