Sovereign CDS Credit Game - Spot the difference...

29th of November 2010:

HIGH BETA EU SOVEREIGN CDS closing 5 Year market run:
PORTUGAL 530/550 +35 bps
ITALY 245/253 +30 bps
GREECE 945/970 -
SPAIN 348/358 +28 bps
IRELAND 600/620 +10 bps
U.K. 74/78 +4 bps
BELGIUM 180/190 +21 bps
FRTR 98/103 +6 bps
AUST 88/93 +8 bps

SOVX CEEMEA S4 5y 223/226 +8 , S3 207/211, ROLL 15/16 1/2

CNTRY RATING | 5Y CDS CHG | BOND ZSPRD
Russia Baa1/BBB | 169/172 +8 | Russia 20' 193
Turkey Ba2/BB | 148/151 +7 | Tky 20' 147
Bulgaria Baa3/BBB | 250/265 +10| Bgaria 15' 191 p
Croatia Baa3/BBB | 255/270 +13| Croati 19' 271
Czech A1/A | 88/93 +3 | Czech 21' € 99
Hungary Baa1/BBB- | 367/380 +17| Rephun 15' 315
Kazakhstan | 200/210 +7 | a
Latvia Baa3/BB | 280/300 +5 | Latvia 18'€ 249 t
Lithuania Baa1/BBB | 265/285 +5 | Lithun 20' 281 e
Poland A2/A- | 155/160 +15| Poland 19 163 s
Romania Baa3/BB+ | 315/330 +15| Romani 15'€ 292


At 600 bps, Ireland's cumulated probability of default on 5 year CDS spread is around 40%.
At close to 1000, Greece's probability of default on 5 year CDS is around 55% as priced by the market in the CDS space.
Belgium hasn't had a government for more than 6 months by the way...Happy birthday! Three prime ministers and two elections since 2007. Is the economy worse off? Apparently not. Belgium's economy is growing, with GDP growth of 2.1% in the third quarter from a year earlier.

Hungary’s central bank decided today to raise interest rates by 25 basis points : its first tightening move since the financial crisis kicked off in 2008...
Fitch may downgrade Hungary from its current BBB- and the 5 year CDS of Hungary is trading tighter than 5 year CDS Portugal!

For me it doesn't sound right. Given the latest hijack on pensions in Hungary, Hungary's 5 year CDS looks cheap. Hungary failed to sell the planned amount of debt at the latest auction on the 25th of November. They planned to sell 40 billions florint 12 months treasury bills, they sold 30 billions only, 10 billions short. That sounds to me like further yield curve steepening and further CDS 5 year spread widening. Florint note due February 2015 was yielding 7.642 percent on the 25th of November, highest yield since January.

People are so focused at the core of Europe's problem (Greece, Ireland, Portugal, Spain and now Belgium's been added), that they have forgotten what is going on at the periphery.