Hungary has just crashed the sovereign default risk party, taking over the number ten spot of potential sovereign defaulters.
This Month: 04 June 2010
A month ago, it was California’s time in the hot seat, with its CDS at 254 bps and a default risk of 20%.
Last Month: 11 May 2010
While California’s risk had surged by 11 May, overall default risk had subsided somewhat.
Bad May Numbers: 06 May 2010
Now, risk is rising substantially. With Venezuela’s CDS trading at an eye-popping 1400 bps. Argentina is also over 1000 bps. What stands out for me is that the number ten spot now occupied by Hungary is more risky than ever. This says the sovereign debt crisis is intensifying.
Hungary’s currency has plunged, making Hungarians’ large debts in other currencies more expensive. Edward Hugh already noticed the comparisons to Greece in January. But Josh Noble at the FT’s blog beyondbrics says "comparisons with Greece – at the moment – look flimsy." He says that if the new Hungarian government takes the right steps, they can restore confidence, despite allegations the previous government fiddled the figures.
But, people are worried about serious contagion. Win Thin says these worries are overblown.
While the outlook for that country remains poor, it does not quite have the potential to roil markets as much as Greece or the other peripheral euro zone members. We looked at BIS on cross-border banking exposure to Hungary as of Q3 09, and total was $158.1 bln vs. $302.6 bln for Greece, $286.7 bln for Portugal, and $1.15 trln for Spain. Still, it’s worth noting that 92% of that exposure is held by European banks, with Austria (24% share of total), Germany (21%), Italy (17%), Belgium (12%), and France (8%) accounting for the lion’s share. Despite having many loans denominated in Swiss francs, Swiss banks themselves hold only 1% of the total cross-border banking exposure to Hungary. UK and US exposure is negligible.
Yes, there is a lot more exposure to Italy, Ireland and Spain but we know that Thailand was the ultimate source of the Asian Crisis. These things have a way of metastasising – and we have already seen the strains in Spain and Greece. You could really argue that it was Hungary which was infected by a virulent strain of the Spanish Flu – and that contagion has already begun. I think people are concerned for good reason.