Credit revulsion has hit Belgium; France and Austria dragged in tow
I will be on BNN at 12:30 ET to talk to Howard Green and a guest from Reuters. We will be talking about bank earnings. But we will also be talking about the European sovereign debt crisis.
Look at these charts that Win Thin has crafted on sovereign bond spreads. this is what I want to discuss at 12:30.
Yes, the periphery looks bad. But look at Belgium, Austria and France. That’s the euro zone core.
As I predicted in August and reiterated most recently last week when I saw Belgium’s CDS indicating a one in four chance of default:
we are going to get another crisis flare. What you need is a trigger for a gap up move in yields that would signal the next flaring of the crisis. The trigger and its timing are unknown, but the crisis they will precipitate is inevitable until the euro zone’s structural deficits are dealt with. As this is a rolling crisis, any gap up will also infect Belgium and France and potentially Austria.
My hope is that Europe moves to address the medium- and long-term issues before the crisis flares. However, I don’t anticipate they will.
Belgium is clearly suffering some serious credit revulsion. France and Austria are being carried in tow. That’s where we stand now.