CMA Sovereign Debt Credit Risk Report - Global Sovereign CDS Prices Tighten 16% in Q4 2012
Jan Tue 22 2013 at 12.30 am
London, 22 January 2013 – Global sovereign CDS prices tightened 16% in Q4 2012 overall, as Europe rallied strongly and Greece repurchased debt, allaying fears of a Euro exit. The report, published today, names the top ten most and least risky sovereigns, as well as the best and worst performers of the quarter.
Western Europe continued rallying from Q3 into Q4, with spreads tightening 19% overall. “Nordic countries ended a strong quarter with Sweden, Norway, Finland and Denmark occupying the top four places in the table of the then least risky sovereign credits, and Sweden edging Norway off the top spot with five year CDS at 19bps,” says Jav Bose, Head of Data Products at CMA. Austria and the Netherlands enter the table with spreads, at 45bps and 46bps respectively, aligning with the strong economies of Germany and Switzerland. Spain and Italy, seen as the key economies in Southern Europe, tightened 23% and 19% respectively and, as the turnaround story continues, Ireland tightened 31% closing the year at 218bps.
As the U.S. ‘fiscal cliff’ and debt ceiling concerns continued into the year end, U.S. CDS spreads remained relatively stable and range bound in Q4, ending the year at 38bps. However, the U.S. slipped down two places in the table to fifth least risky sovereign credit.
The only sovereign to widen significantly in the quarter was Argentina, with spreads widening 52%. “Investors in Argentinian debt faced a roller-coaster ride in Q4 as five year CDS prices, expressed in upfront terms, reached a high of 4832bps at the end of November, but dropped 10% in a day on 29 November,” comments Bose. “This was due to concerns of a default following an appeal court ruling allowing Argentina more time to pay ‘hold out investors’.” Ending the quarter on 1450bps, Argentina occupies the position of most risky sovereign credit in Q4.
This quarter’s report also includes commentary provided by S&P Dow Jones Indices, highlighting developments on S&P/ISDA Credit Default Swap Indices across various asset classes.
*As Greece CDS pricing availability was extremely thin and illiquid this quarter, with activity in bonds rather than CDS, Greece has not been included in the rankings for this quarter’s report – though it is still listed in the CPD table.