Chart of the Week: Investors’ default fears fall further as ECB signals future easing

The press release that followed the ECB’s latest monetary policy meeting echoed recent comments by Mario Draghi, and more or less confirmed that the central bank has now adopted an easing bias. Fathom now expects the ECB to ease policy through some combination of asset purchases and the introduction of a system of tiered deposit rates. The growing likelihood of further loosening has been reflected in bond markets, with the yield on ten-year Bunds falling roughly 90 basis points over the past twelve months. The prospect of yields remaining lower for longer has been interpreted as good news for the public finances of the peripheral economies, with Fathom’s proprietary probability of default indicators showing that, in most countries, the market-implied likelihood of a sovereign default has continued to fall. Indeed, the indicator for Greece has fallen below 20% in recent weeks, a decline of almost 15 percentage points since the start of the year.

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