We will try to put into perspective last night's panic which was supposedly triggered by concerns over a Greek contagion.
The chart below from Bespoke shows of the Credit Default Swap (CDS) prices or the cost of insuring debt, as of last night.
Bespoke decries the exaggeration in the news, "While CDS prices are higher today for countries like Greece, Portugal, Spain, and Italy, they were just as high late last week prior to declining quite a bit yesterday on news of the Greek bailout. Basically default risk today is right back where it was late last week and not "blowing out" to higher levels."
It's true that the PIIGS led by Greece has seen a rebound in CDS prices to indicate renewed concerns over sovereign issues in spite of the bailout, but they remain below their previous highs and have NOT reached the level of Argentina and Venezuela levels for now.
Again from Bespoke, ``Greece 5-year CDS is at 737 basis points today. Prior to the bailout it was above 800 bps. Venezuela and Argentina still have higher default risk than Greece. Portugal CDS is at 355.4 bps today, up from 275 bps yesterday, but still below the 380 bps it was at last week. Spain is probably the most worrisome country on the list at 208 bps, since it has a much bigger economy than any of the other countries at similar default risk levels. And Italy has jumped up to 164 bps today, which is more than double the next closest G-7 country."
The interesting part is, despite the so-called contagion spurred selloffs, CDS prices in the US and the UK have barely budged! In short, the selling frenzy could be media "exaggerations" and market sentiment feeding into each other more than a real "contagion" related dynamic.
We see parallel developments in the US treasury market. US 10 year yields have fallen (alternatively bond prices rallied) as stock markets retrenched. This implies more of "fear" than sovereign related concerns as both the CDS and treasury markets suggests.
Yet despite the spike in the VIX "fear" index, the US S&P seems more resilient relative to the similar episode last February-meaning that while the VIX have climbed about three quarters of the VIX high in Feb, the decline in the S&P have been relatively less.
Importantly while both the Euro benchmark (STOX50E) and the S&P fell nearly by the same degree last February, today, the S&P appears to outperform the Eurozone by falling less.
So even if the month of May could be partially validating the maxim, sell in May and go away, it isn't clear that this is the start of THE major inflection point. It looks more like a reprieve following the string of gains with Greece as serving as a rallying point for the current market action- of course, until proven otherwise.
The chart below from Bespoke shows of the Credit Default Swap (CDS) prices or the cost of insuring debt, as of last night.
Bespoke decries the exaggeration in the news, "While CDS prices are higher today for countries like Greece, Portugal, Spain, and Italy, they were just as high late last week prior to declining quite a bit yesterday on news of the Greek bailout. Basically default risk today is right back where it was late last week and not "blowing out" to higher levels."
It's true that the PIIGS led by Greece has seen a rebound in CDS prices to indicate renewed concerns over sovereign issues in spite of the bailout, but they remain below their previous highs and have NOT reached the level of Argentina and Venezuela levels for now.
Again from Bespoke, ``Greece 5-year CDS is at 737 basis points today. Prior to the bailout it was above 800 bps. Venezuela and Argentina still have higher default risk than Greece. Portugal CDS is at 355.4 bps today, up from 275 bps yesterday, but still below the 380 bps it was at last week. Spain is probably the most worrisome country on the list at 208 bps, since it has a much bigger economy than any of the other countries at similar default risk levels. And Italy has jumped up to 164 bps today, which is more than double the next closest G-7 country."
The interesting part is, despite the so-called contagion spurred selloffs, CDS prices in the US and the UK have barely budged! In short, the selling frenzy could be media "exaggerations" and market sentiment feeding into each other more than a real "contagion" related dynamic.
We see parallel developments in the US treasury market. US 10 year yields have fallen (alternatively bond prices rallied) as stock markets retrenched. This implies more of "fear" than sovereign related concerns as both the CDS and treasury markets suggests.
Yet despite the spike in the VIX "fear" index, the US S&P seems more resilient relative to the similar episode last February-meaning that while the VIX have climbed about three quarters of the VIX high in Feb, the decline in the S&P have been relatively less.
Importantly while both the Euro benchmark (STOX50E) and the S&P fell nearly by the same degree last February, today, the S&P appears to outperform the Eurozone by falling less.
So even if the month of May could be partially validating the maxim, sell in May and go away, it isn't clear that this is the start of THE major inflection point. It looks more like a reprieve following the string of gains with Greece as serving as a rallying point for the current market action- of course, until proven otherwise.
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