Friday, April 15, 2011

Greece Default Risk At New Record, No Contagion

The default risk of Greece, represented by the Credit Default Swaps (CDS), has just traded at new record highs.

The elegant chart and subsequent table below from Bespoke Invest.


With the current surge, Greece has now supplanted Venezuela as the riskiest nation with the likelihood of a default, as shown below.


Additional comments

1. The credit risk table shows that it has been a bipolar world. Emerging markets have mostly been down (diminishing perception of credit risks), since December 31, 2009, while developed economies have been up (higher credit risks mostly from the after effect of the 2008 crisis).

2. The Greece episode which used to haunt the world markets (in 2010) appears “contained” or has become uncorrelated today.


(from Move along, nothing to see here

So far the Euro, the Europe’s Stoxx 50 (Stox50) and major global equity index (DJW) has virtually ignored the Greece rumpus unlike in 2010.

The lessons:

This highlights the dynamic where:

Past performance do not guarantee future outcome.

Markets learn to discount risks.

Global central bank’s flooding of money has so far temporarily masked whatever credit woes that have plagued the PIIGS.

It’s a complex market with variable interplaying factors. Oversimplification leads to misdiagnosis

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