Thursday, 9 June 2011

Greece - Cleaning the Augean stables - updates on the macro picture

Greece CDS is still on the forefront of the news in Europe.

1st quarter GDP was down 5.5 percent year-on-year versus the previous flash estimate of a 4.8 percent contraction for Greece.

Greek Sovereign CDS 5 year reached a record 1510 bps on the 9th of June as I am writting, whereas Portugal reached another record at 720 bps and Ireland at 693 bps.

Please note Greece represents 1/15th of the SOVX index currently traded.

Europe Sovereign CDS are trading wider on the 9th of June:
Source CMA

Interesting to see Santander Senior 5 Year CDS trading tighter than Spain Sovereign CDS 5 year. Note the close correlation at the beginning of the chart and the evolution.
Source CMA

US banks as well are drifting wider, due to US rating concerns, and the ongoing fight about tighter regulation between the FED and the banks:
Source CMA

I am still very cautious on banks stocks in general. It's better to own preferred shares than common stock. There are additional risks for dilution for European banks shares, given some needs to raise additional capital.

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