European Sovereign Update: CDS spreads stabilize while Italy officially joins the troubled nations

Europe's troubles are making America look like a safehaven. 

Thusfar, we have gotten right all of our predictions.  We predicted a US downgrade last year.  We predicted the coming Greek default.  Right now, markets have moved in favor of a divided Europe with the PIIGS leading the way to a Euro breakdown. 

Greece is beyond saving.  Any European money thrown down that hole is lost forever.  Just let them default.  Why does Germany feel the need to bailout anyone and everyone.  Having said that their CDS spreads have come off their high of 2500, and have stabilized at 1750.  This is just the markets trying to figure out the extent that they are going to lose.  Will investors lose 25% or 20%?  I don't know.  But they won't get par for sure.   
Ireland CDS spiked at 1200, but have now come back down to 700, which is the range where they have hovered for some time.  Portugal CDS are at 850, which means they are considered even more risky than Ireland, which preceeded them down the bailout/default path. 

I stated before that the crisis would stop at Spain if Spain allowed their Cajas to default instead of bailing them out and assuming their liabilities.  I still think that this is the case, but the market seems to feel that Spain is a greater risk than before as their CDS spreads have jumped in response to the governments new requirement for the troubled cajas to have 8% capital on their balance sheets. 

Italy is the real question mark now as their CDS spreads are about 350, which in our book is halfway to hell.  Anything above 600 makes refinancing old debt unbearable.  Thus, Italy, which we always though would remain unscathed, is beginning to look more scathed. 

Greece 5 year CDS spreads

Ireland 5 year CDS spreads

Portugal 5 year CDS spreads

Spain 5 yr CDS Spreads

Italy 5 year CDS spreads


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