Greece‘s CDS spreads spiralled upwards today, providing a reminder that the sovereign’s problems are far from solved. The country’s spreads rose to 400bp, 50bp wider than Thursday’s close and the first time it has reached this key level since Feb 24. The widening appears to have been sparked by concern about bond issuance and the rate that Greece can borrow from the EU. In what appears to be yet another example of the disunity within the EU, Germany is in conflict with its fellow members over the interest rate that will be charged to Greece if it taps the emergency loan package agreed last month. According to reports, Germany is opposed to Greece being lent money at the same rate Portugal and Ireland fund, believing that Greece’s fiscal position merits a higher rate.
Meanwhile, Greece announced that it will launch a USD bond issue this month to help cover its May borrowing requirement of EUR10 billion. The uncertainties around this issue, particularly the yield it will need to offer investors, added to the widening pressure. Reports that Greece is unwilling to accept IMF conditionality – denied by the Greek government – didn’t help sentiment. The Markit SovX Western Europe index was 6bp wider at 88bp, driven by the peripherals.
The negative news on Greece had a dampening effect on the broader credit market, though it was still tighter compared to Thursday. The Markit iTraxx Europe index was trading around 76.5bp, about 1bp tighter than the last close. The Markit iTraxx Crossover was about 5bp tighter at 418bp, while the Markit iTraxx HiVol was at 116bp, about 1bp tighter than Thursday.
Markit’s Gavan Nolan wrote this CDS report