Greece, most risky, Norway the least risky sovereign credits – CMA report

Embattled Greece tops the global table of the most risky sovereign credits in the world, as it has been for much of the past year, while Norway continues to head the least risky sovereign issuers, according to a report on liquidity metrics from CMA Datavision Bonds, which provides independent, intraday pricing on some 1,400 single name CDS and CDS indices.

By the end of 2011, Egypt had entered the ‘most risky’ league in eighth position, as spreads widened from 457bp to 621bp after the deposing of President Hosni Mubarak. Pakistan moved into third place as Argentina and Venezuela both improved in Q4, but liquidity remained thin with CDS Bid/Ask spreads around 100bp, and bonds not much better at 3pts for the 2016 and 5pts for 2036 bonds.All spreads referred to are five year mid par spreads.

As the Eurozone debt crisis unfolded in Q4, European spreads widened 9% overall. A bail out of Dexia at the beginning of the last quarter was followed by concerns about Italy’s debt in November, and S&P threatening to downgrade the entire Eurozone in December.

Nearly all global CDS prices widened during November, indicating the significance of Western Europe to the global economy and the importance of finding a permanent resolution to the debt crisis.

In Italy spreads peaked at 595bp on November 15 following the end of the Berlusconi era, but settled back to 486bp, 33bp wider than in Q3. With $2trn of debt and 120% debt-to-GDP ratio, implied FX devaluation from a default in Italy is around 17% according to CMA DatavisionQuantos. Spain and Belgium’s charts were a mirror image of Italy’s, the report said.

Behind Norway at the top of the global least risky table came the US, which dipped below 40bp mid-Q4 but widened out with the rest of the market in November, closing the year below 50bp, and 3bp tighter on the quarter. Australia improved to sixth position and New Zealand entered the top 10 helped by a strong Q4 performance in Asian credit markets. The UK briefly topped the 100bp level but stayed below 100bp at year end, aided by a strong performance in gilts in December.

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