Peripheral Europe CDS Update

Although the inevitable Greece default is once again delayed, the credit default swap (CDS) market is not exactly impressed. Now the market is assigning a 98% probability of Greece default.

of course, even though the credit market seems to have accepted the new reality, equities are probably still in denial, and politicians are still attempting to muddle-through for hopefully a few more months. That will not stop the inevitable default, but to waste everyone’s time by grabbing everyone’s attention to occasional “deals” and “solutions” and the subsequent disappointments because things can only get worse.

Via Bloomberg Brief’s economist Michael McDonough, here is the latest chart of the European sovereign CDS.

With the increasing concern of European sovereigns and banking system, banks are finding it harder and hard to fund. US money market funds are cutting exposure to French banks, for instance, and one executive said (vis Wall Street Journal):

"We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . we hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore."

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.