FT Alphaville mentioned on Monday that the CDS market did not appear to be implying much of a contagion-effect for Central and Eastern Europe in connection with troubles in the Hellenic Republic.
And having on Thursday noted the widening spread between Greek government bonds and German bunds, a basic measure of the risk premium investors want in exchange for holding Hellenic debt, we feel the need to repeat the question.
From Marc Ostwald at Monument Securities:
Take a look at the table below, which compares the yields on Greek Govts with the EUR denominated debt yields of other central and eastern European countries, many of which are classified as EM (i.e. emerging markets).
There is little doubt that the “risk” premium now priced into Greek yields is becoming very, very silly . . . what is striking in the list below is the colossal premium of short-dated Greek govts over the likes of Romania, Bulgaria and Croatia, all of whom would suffer enormously if Greece were to suffer a debt restructuring (an event we consider to be only as likely as ‘never say never’), particularly as such a restructuring would imply a withdrawal of Greek banks from all of those countries. Certainly food for thought . . . and certainly evidence that markets have not thought through the risks in a consequential way . . .
And here are the tables:
Related links:
Grεεk dεbt disastεr – FT Alphaville
Dεfαult risk – FT Alphaville
Europe cannot afford to let Greece default – FT