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Press release from PR Newswire

European CDS Spreads Remain Stable Despite Cypriot Banks' Insolvency

Tuesday, April 16, 2013

European CDS Spreads Remain Stable Despite Cypriot Banks' Insolvency

12:17 EDT Tuesday, April 16, 2013

LONDON, April 16 2013 /PRNewswire/ -- Western European CDS spreads have experienced a relatively stable quarter, despite receiving news that Cypriot banks - after taking a hit on their investment in Greek bonds - were insolvent, according to S&P Capital IQ's latest quarterly Global Sovereign Debt Credit Risk Report. 

A last minute bail out of Cyprus prevented a default as upfront prices fluctuated 7pts towards the end of the quarter. However, default risks remain high at 70% over five years, according to the report.  Meanwhile in the UK, spreads widened to 55bps after the much anticipated credit rating downgrade, but finished the quarter strongly at 45bps, as a mix of austerity measures and bond purchasing continue.

Elsewhere, US CDS spreads remain unchanged on the quarter while the market continues to assess the impact of when the US ceases the $85bn monthly bond repurchase program.  

Top 10 Most Risky Sovereign Credits

Source: S&P Capital IQ CDS

POSITION Q1

COUNTRY

5 YEAR CPD (%)

5 YEAR CDS MID (BPS)

PREVIOUS RANKING

1

Argentina

84.5%

4088

1 ? No change

2

Cyprus

70.0%

1408

2 ? No change

3

Pakistan

49.9%

933

3 ? No change

4

Venezuela

41.3%

740

4 ? No change

5

Egypt

39.1%

690

7 ? Down 2

6

Ukraine

34.8%

594

5 ? Up 1

7

Portugal

31.2%

409

6 ? Up 1

8

Iraq

28.9%

479

8 ? No change

9

Lebanon

26.3%

418

9 ? No change

10

Tunisia (Proxy)

24.8%

393

New entry

 

"The cost of debt protection remained relatively stable in the top 10 least risky sovereign credits, with Germany moving 5bps tighter and CDS spreads in New Zealand coming into line with Australia," says Jav Bose, Head of Derivative Valuations at S&P Capital IQ.

The first quarter of 2013 was relatively stable if the handful of outliers - namely Argentina, Egypt, Slovenia, Hungary and Cyprus, are excluded. CDS spreads in Ireland tightened a further 14%, closing at 189bps, with Iceland tightening 11.3%, closing at 166bps and Abu Dhabi leading the charge and tightening a further 17.3% closing 70bps.

Top 10 Least Risky Sovereign Credits

Source: S&P Capital IQ CDS

Position Q1

Country

5 Year CPD (%)

5 year CDS Mid (bps)

Previous Ranking

1

Norway

1.9%

21

2 ? Up 1

2

Sweden

2.0%

23

1 ? Down 1

3

Finland

2.9%

33

3 ? No change

4

Denmark

3.1%

34

4 ? No change

5

USA

3.3%

37

5 ? No change

6

Germany

3.3%

37

6 ? No change

7

Switzerland

3.6%

40

8 ? Up 1

8

Australia

3.7%

43

New entry

9

New Zealand

3.8%

44

New entry

10

Austria

3.9%

44

9 ? Down 1

 

Emerging Europe ended the quarter 16% wider overall, the worst performing region of the quarter, as concerns on the health of Slovenia's banks see the cost of protection surge 58%. Hungary and Croatia widened more gradually, accelerating towards the end of the quarter following news of the problems of Slovenia's banks, ending +41% and +33% respectively.

"Globally, focus in Q2 2013 will be on protection levels in Eastern European countries and the potential impact on the Eurozone, and Argentina where default probability surged this quarter," says Jav Bose. "Venezuela is another country capturing the headlines, as its leadership under Chavez finally came to an end this quarter. However, the cost of protection still remains wide, closing the quarter at 740bps, 15% wider on the quarter.

"Perhaps a little surprisingly, Brazil also widens to 137bps, as it braces itself for both the World Cup and the Olympics in the next four years."  

About S&P Capital IQ's Global Sovereign Debt Credit Risk Report The Global Sovereign Debt Credit Risk report focuses on changes in the risk profile of sovereign debt issuers, with the intention of identifying key trends and drivers of change. The report uses data from S&P Capital IQ CDS to determine Q1 2013 rankings and commentary for:

  • The world's top ten most risky sovereign debt
  • The world's top ten least risky sovereign debt
  • The largest percentage tighteners
  • The largest percentage wideners
  • Regional comparisons.

About S&P Capital IQS&P Capital IQ, a business line of The McGraw-Hill Companies (NYSE:MHP), is a leading provider of multi-asset class and real time data, research and analytics to institutional investors, investment and commercial banks, investment advisors and wealth managers, corporations and universities around the world. We provide a broad suite of capabilities designed to help track performance, generate alpha, and identify new trading and investment ideas, and perform risk analysis and mitigation strategies. Through leading desktop solutions such as the S&P Capital IQ, Global Credit Portal and MarketScope Advisor desktops; enterprise solutions such as S&P Capital IQ Valuations, and Compustat; and research offerings, including Leveraged Commentary & Data, Global Markets Intelligence, and company and funds research, S&P Capital IQ sharpens financial intelligence into the wisdom today's investors need. For more information visit: www.spcapitaliq.com.

S&P Capital IQ, as well as its affiliates, directors, officers shareholders, employees or agents (S&P Capital IQ) are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for any results obtained from the use of the Content described herein, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P Capital IQ and its affiliates DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

© 2013 McGraw-Hill Financial, 20 Canada Square, Canary Wharf, London, E14 5LH Tel: +44 (0)20-7176 3800. All rights reserved.

SOURCE S&P Capital IQ

For further information: Eleanor Childs, S&P Capital IQ Communications, eleanor_childs@spcapitaliq.com, +44 (0) 20 7176 6754

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