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Which Countries Have The Highest Default Risk: A Global CDS Heatmap
Which Countries Have The Highest Default Risk: A Global CDS Heatmap
Sweden beats USA and Germany as the least likely to default on its bonds but at the other end of the global sovereign risk spectrum lie two socialist utopias – Venezuela (CDS just shy of 6000bps) and Greece (CDS around 1800bps) are the nations most likely to default.
Of course, our readers will be well aware of this: back in December, when its CDS was trading at “only” 2300 bps (or whatever points upfront equivalent it was back then) we said Venezuela CDS are going much, much wider. Little did we know that in just about 14 months they would more than double, and as of last check, Venezuela CDS are just shy of 6000bps suggesting a default is virtually guaranteed.
So aside from these two socialist utopias, who else is on the default chopping block? The CDS heatmap below lays out all the countries which according to the market, are most likely to tell their creditors the money is gone… it’s all gone.
Below, in order of declining default risk, are the ten most likely to follow Venezuela and Greece into the great default unknown:
- Ukraine
- Pakistan
- Egypt
- Brazil
- South Africa
- Russia
- Portugal
- Kazakhstan
- Turkey
- Vietnam
Sovereign Credit Default Swaps (CDS) are financial contracts that measure the risk of default on sovereign debt: the higher the spread, the greater the risk of default.
Source: BofA
Italy, Greece, Financials Crash As European Stocks, Peripheral Bonds Plunge
Italy, Greece, Financials Crash As European Stocks, Peripheral Bonds Plunge
Europe crashed today…
Led by utter carnage in financials…
(note that thanks to Draghi’s liquidity spigots financial credit remains suppressed -for now – relative to equity. We do note that Sub financials credit is blowing out)
And every EU nation is now in at least a correction since the end of QE3 (Italy, Spain, and Greece in bear market)
And as EU financials tank, so sovereign risk soars for peripheral nations…
Grexitology – A Mexican Standoff
Grexitology – A Mexican Standoff
The Greek Conundrum
As you can see above, we have created a new term describing deliberations regarding the possibility of a Greek default combined with an exit from the euro area. The reason why the time for the term “Grexitology” has come is that opinions on Greece’s future in the euro zone are plentiful and are covering the entire imaginable range, from “it would actually be a good thing” (getting rid of the weakest link in the euro chain) to “it won’t happen” to “it doesn’t matter” to “it will bring about the end of the world”.
In the latter category we find the always dependable Ambrose Evans-Pritchard, pronouncing imminent doom. He thinks that everybody is too complacent about the “contagion danger” in light of financial markets so far confining their negative reaction to Greek bonds and stocks instead of meting out more broad-based punishment (e.g. Spanish and Italian government bond yields have so far barely budged from recently attained all time lows). He believes that unless Spain and Italy are getting into trouble as well, the German government just doesn’t care what happens with Greece.
We don’t want to get into his views into too great detail here. Some of what he writes is surely correct in a descriptive sort of way, but there is a constant insinuation that somehow, more money printing would “fix” everything, along with a “fiscal union”. This amounts to saying that the problems caused by credit expansion and reckless spending should best be tackled by even more credit expansion and reckless spending, a view we strongly disagree with. Anyway, Pritchard concludes by saying:
…click on the above link to read the rest of the article…
