European Sovereign Update: CDS spreads rising slowly toward all time highs

Europe is royally hosed right now.  The EFSF (European Financial Stability Facility), otherwise known as the Brussels Bailout Machine, has taken money from European governments, namely Germany and France, to bailout their freespending comrades. 

The idea of the facility was to allow the other governments to lower their cost of capital.  The credit default swaps measure the market's probability that these countries will default.  If they do default the credit buyer gets paid by the credit seller.  the CDS spread is the difference in yield of a bond that is protected, versus one that is not. 

If the Brussels Bailout Machine is working as intended, then the chance of these governments defaulting should go down, but in reality, it is not working that way.  In fact, since the bailouts have been announced, CDS spreads have increased. 

Greece is the worst offender and CDS spreads are still almost 950, which indicates that markets are pretty sure that Greece will stiff its investors.  Ireland's CDS spreads, at almost 600, indicate that it is a very likely possibility.  Portugal's are over 450, which do not inspire confidence either. 

Market's seem to be saying that the worst has passed for both Spain and Italy, as they have come way off their highs and do not seem to destined to reach them again. 

Greece CDS spread 948.771

Ireland CDS spread 598.994

Portugal CDS spread 467.68

Spain CDS spread 264.584

Italy CDS spread 185.131


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