European CDS for the week (Mon-Thurs trends)– while European equities performed well this week, the region’s debt concerns remain far from resolved, evidenced by the continued widening of CDS costs. Germany crept out ~2.5bp to 57.5 (new all time wide for Germany although they remain low on an absolute basis). The German CDS is increasingly being watched amid worries that it will increasingly be asked to subsidize its weaker Eurozone
neighbors.
France moved out ~4bp also to a new wide (at 107bp, which is wider than Thailand, South Korea, and Chile, among others). S&P came out late on Fri and reaffirmed France at a AAA but market concerns persist re the country (partly b/c of its own deficit but also like Germany b/c of its potential liability when the Eurozone bailout costs are tallied).
Greece widened out from 985bp to 1053bp (also new all time highs) and is the most expensive country on the Bloomberg SOVR page (ahead of Venezuela). A Greek paper reported Fri that the country may seek a debt restructuring when the current EU/IMF bailout program expires (the paper said haircuts wouldn’t be sought but that rate cuts would be pursued).
The other major nations all widened too and are all at or near record levels (Ireland was out ~30bp for the week to 600, Italy was out ~28bp to 232bp, Portugal was out 30bp, and Spain was +15bp). In the eyes of investors, the sovereign debt situation remains unresolved, although the recent widening of spreads hasn’t bled into risk assets (like equities) or hurt the euro too much (in contrast to the situation back in Apr/May when Greek problems first flared, equities held in very well through this latest Irish crisis). Whereas Greece came somewhat out of the blue, the situation now is viewed as being solvable if only certain political obstacles (namely Germany) can be overcome
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