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The Eurozone crisis is slowly fading away

Eurozone swap spreads are still elevated, but they have come off their highs and as such are no longer signaling an imminent disaster. U.S. swap spreads have moderated substantially, having returned to the low 30s, well within the range that is considered "normal." The Eurozone banking system has avoided a meltdown, and banks' access to dollar liquidity (blue line in second chart above) continues to improve, suggesting further declines in euro swap spreads are likely. Meanwhile, from the perspective of U.S. markets, contagion risk has declined considerably.

If anything sums things up, it's this chart of the ratio of the Vix index (a measure of fear and uncertainty) to the 10-yr Treasury yield (a proxy for the economy's growth prospects). We are still far from optimum conditions, of course, but the worst of the panic and gloom-and-doom is a thing of the past. There is definitely light at the end of the tunnel.

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