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Not surprisingly, given the negative equity market performance in Europe this morning, European credit default swaps are widening this morning quite dramatically.  As we mentioned in our Sovereign Debt Call in April and our May call on Spain, watching the pricing of credit default swaps are key to understanding the fundamentals of debt markets, and the direction of equity markets.  Yesterday, we noticed that Italy’s CDS spreads were widening dramatically and we are seeing continued follow-through this morning.  At 784 basis points for 5-year credit default swaps, Greece is, in our opinion, clearly pricing in something well beyond a bail out of its debt at par.

The chart below outlines the key equity market performances this morning in Europe, % change day-over-day of 5-year CDS, and the more recent fiscal metrics of each country:

Credit Default Swaps Morning Coffee - 1

Italy is once again a key call out this morning as its CDS spreads continue to widen at an accelerated pace.

Daryl G. Jones
Managing Director