On Friday the Central Bank of Iceland announced a bilateral swap facility with its Nordic counterparts, borrowing up to 1.5 billion Euros ($2.3 billion) to help strengthen the country‘s reserves of foreign currency.
The CDS level for Glitnir has fallen from 410 basis points to 365bp yesterday, whilst Landsbanki has fallen 75bp to 185bp. Kaupthing now stands at 430bp, having fallen 30bp since the agreement was announced.
Furthermore, the CDS on the Icelandic krona (ISK) has fallen by 30bp, making it easier for the Central Bank to boost its reserves of foreign currency by means of additional credit deals.
Icelandic Prime Minister, Geir Haarde, has said that further measures by the government and the Central Bank are in the pipeline. Glitnir Bank speculates that direct foreign borrowing would be the most likely move, potentially bilateral swap facility agreements with the Eurpean Central Bank or the Bank of England.