CDS report: Cocktail hour in Athens | FT Alphaville

CDS report: Cocktail hour in Athens

Markit’s Otis Casey wrote this CDS report

If the volatility in the sovereign CDS market is not enough to get the blood going then reports that protesters and Greek police were clashing in Athens today might. The protest against deficit reduction measures apparently numbered in the tens of thousands. A small group of protesters threw Molotov cocktails and debris at police. Perhaps in an effort to calm tensions, European Council President Herman Van Rompuy applauded Greece‘s efforts in taking responsibility for cutting its budget deficit and indicated that the EU was preparped to “take determined and coordinated action if needed to safeguard stability in the euro area…”. CDS on Germany was unchanged to 1 bps wider.

Markit chart of Greece and Iceland CDS

Markit chart of Greece and Iceland CDS

Five year protection on Greek debt widened significantly vs yesterday’s closing level of 368 bps. Offer levels were in the mid to high 380s in late trading. Spain and Portugal were each 7 bps wider in sympathy at 177 bps and 133 bps, respectively. Activity was heavier in sovereigns today in contrast to the corporate CDS market.

There will be no ice in the cocktails today: CDS on Iceland diverged significantly from the peripherals. Europe’s executive commission recommended opening membership talks with Iceland to join the EU. Iceland is on a “fast track” for membership and expectations are that they could join the bloc as soon as 2012-13. In addition, Iceland’s finance minister expressed optimism that a deal would be worked out regarding compensation to British and Dutch depositors caught up in the collapse of Icesave. Iceland was 13 bps tighter at 530. CDS referencing Iceland reached its widest levels earlier in the month on news that the countries were holding discussions but not making significant progress on a resolution.

The broader credit markets were looking for a bit more direction today. Volumes were light as the markets watched the continuing situation in Greece but also awaited US Federal Reserve Chairman Ben Bernanke’s testimony (occurring now). The markets still seem to be analyzing the Fed’s move last week to increase the discount rate by a quarter percentage point at the same time that the Fed indicated that the move was not a long term policy shift. The Markit iTraxx Europe five year was quoted close to unchanged in late trading after being slightly wider earlier in the session. Bid-offers currently are in the 85.50-86.50 context.