ESMA issues risk dashboard for first quarter of 2017

On 14 June 2017, the European Securities and Markets Authority (ESMA) issued its most recent iteration of its Risk Dashboard, covering risks in the EU’s securities markets for 1Q2017. ESMA’s overall risk assessment remains unchanged from 4Q16 at high levels.

In 1Q17, EU financial markets remained relatively calm with stable volatility and increasing equity market prices. EU sovereign bond yields continued to increase in 1Q17 by around 19 bps on average mirroring US government bonds. However, yield developments were heterogeneous with potential reactivity to political events reflected in higher than average yield increases for some member states. Investment fund liquidity remained a concern with strong bond and equity funds inflows, potentially subject to event-related reversals.

While main risks remained high, ESMA’s outlook for market, liquidity, credit and contagion risk is stable. The low yield environment and related sustained concerns with regard to excessive risk taking and asset pricing persisted. Going forward, ESMA considers political uncertainties, incl. the Brexit negotiations and the election calendar in the EU, as the most important potential sources of risk in 2017.