Position: Short France (EWQ)
We keep our eye closely on Sovereign CDS prices as a leading indicator of risk. The chart below shows that while risk has come in over recent days for many of the proverbial “PIIGS”, the levels are still elevated and we’ve yet to see confirmation of a meaningful down trend. Greece, however, continues to trend higher.
Even with European equity markets getting a boost today on the heels of China’s decision to allow the Yuan to appreciate, CDS reflects continued concerns surrounding sovereign debt risk throughout Europe’s debt-laden economies. A report by Standard & Poor’s today held steady its credit rating for six Spanish banks, yet excluded Banco Santander and BBVA “due to their multinational presence” and only included four of the 40 savings (cajas) banks throughout the country in its assessment.
While we hold that the transparency associated with the Bank of Spain’s pledge to publish the results of its bank “stress tests” is positive, we believe Spain’s sovereign debt concerns are far from out of the woods. Stay tuned.