FT Alphaville recently took a look at Portugal and Spain decoupling from a bond yield perspective.
One week and one bailout later, here’s what it looks like from the point of view of CDS spreads, courtesy of Markit. The widening gap is evident, though it has moved a touch narrower of late as Portugal has tightened but Spain has stayed relatively constant.
And while we’re here, did you hear last week’s joke?
A German, a Greek, an Irishman, and a Portuguese walk into a bar…
… the German pays! (We’ll grab our coats.)
Anyway, that German flatline above might not leave much of an impression on you, but it masks a lot of action. Lisa Pollack over at Markit points out that the just-published DTCC CDS activity figures reveal some increased levels of activity in CDS trading in the new divorcées, as well as for Germany.
You can see it in the chart below:
Adding the same type of colour around Banco Bilbao (BBVA), Rhodia, and Santander, and that completes the cast of the top six most active names in CDS markets last week when measured by the number of contracts:
And it seems that it’s not just the board of Rhodia having their cockles warmed by the aspect of being acquired by Solvay. CDS market says? Two thumbs up.
About Spain and its banks though — likely culprits include short-covering, new bond issuance, and shifting of views as hedges are adjusted in a tres-peripheral-bailout, Iberian-decoupled world. Seems like it must have been a fun few weeks to be sitting on a European sovereign CDS desk…
(Graceful, we know.)
Related links:
The market for sovereign default recoveries – FT Alphaville
Missing – Portuguese dead cat - FT Alphaville