Contagion: Sovereign Credit Default Swap Wideners – Guess Who?

By Edward Harrison On Nov 1, 2011

This chart from Credit Market Analysis shows the sovereign bonds which had the greatest percentage increase in their default probability over a 5-year horizon. Greece is number one. As I indicated yesterday, I believe the referendum in Greece makes the likelihood of a CDS trigger greater. And this chart seems to indicate that CDS market participants agree.

Beyond Greece, I would focus on numbers above 25% probability on the list, meaning that they have been affected by contagion today and their default probability is high. That would therefore include Italy and Spain as countries to see as most affected. Austria is now firmly above 10% default probability. So I think that bears watching as well.

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Edward Harrison is a senior Editor at Bloomberg. He is also the founder of Credit Writedowns newsletter, a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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1 Comment

David Lazarus says 13 years ago

For some time I have had concerns about Austria. Its banks have been lending heavily to eastern Europe. The recent change in Hungary about terms of loans will mean big losses for Austrian banks. So the ratings are probably justified. Estonia is also not out of the woods either. Its economy has shrunk massively and its debt burden might be a little too extreme.

The fact that core countries like Denmark and Germany are also affected is expected. I am surprised that the ratings are not higher considering that Germany’s banks lent so much all over Europe.

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