Thursday, 16 June 2011

Blood in the Credit Markets - Game on - Greece, that Lehman feeling?

On the 26th of November I posted : European Sovereign Debt - There will be blood

Was it visionnary? Hardly so.

European politicians are running out of options. They can't keep kicking the can down the road, because the road has an end.

Greece Sovereign 5 year CDS is now trading upfront, following it's stratospheric rise to around 2190 bps (+435 bps on the day!), implying more than 80% cumulated probability of default:

2 years Greek yield hovering around 28.25%. It sounds like game over for Greece, at least that's what the market is telling us.

Ireland and Portugal 5 years Sovereign CDS widened by 34 and 25bps to 815 and 810 bps.

ITraxx Financial Senior at 171.5 bps and Itraxx Fin subordinated index was at 310 bps.
Itraxx Main Europe 5 year, representing 125 corporate investment grade names at its highest since January 10 at 112 bps.

Vix index which has been too complacent for too long, suddenly woke up today to move straight to around 24% before coming off slightly:

We need to monitor closely VIX, to see if it breaks above 30, which was the highest point reached on March 16th.

In relation to Greece, David Goldman has an interesting proposal to resolve the ongoing issue: "Europe Needs One Horrible Example"

An entertaining read to say the least!

In relation to US Banks CDS, still widening today:
S&P’s LCD group gave an update, surge in demand for default protection = Not the best sign.

"After a brief respite Tuesday, five-year protection costs for bank, broker and consumer financial companies rose another 4-6% today after widening a similar amount yesterday, with latest levels representing near or full retracement of net tightening moves across the sector over the first four months of the year, trade data show."

"Significant percentage moves wider in five-year CDS spreads since the end of May include Wells Fargo (up 31% to 107 bps), Merrill Lynch (up 29% to 182 bps), Bank of America (up 27% to 178 bps), Capital One Financial (up 25% to 125 bps), Morgan Stanley (up 23% to 176 bps), Citigroup (up 22% to 156 bps), American Express (up 17% to 85 bps) and Goldman Sachs (up 11% to 158 bps)."

I am sticking with my previous recommendations of avoiding US banks stocks.

It is still "Risk Off" mode for now.

No comments:

Post a Comment

View My Stats