Global Debt Concerns Overwhelmed by Liquidity

Here is a nice update on sovereign default risk prices from Bespoke Invest

They write,

default risk has fallen the most for Japan, China, Australia, Chile, and South Korea since July 2nd. It has risen for just four countries -- Egypt, Portugal, Ireland, and the US. Yep, the US has seen default risk rise 15.7% since the start of July, even as the equity market has performed well. Germany has the lowest default risk of all the countries shown.

Of the four high-risk states highlighted, Illinois currently has the highest default risk at 275 bps, followed closely by California at 269 bps. New York and New Jersey are both just above 200 bps.

Flushed with liquidity, most of the world has seen a decline in concerns over debt as measured by their respective credit ratings.

However, we seem to be seeing a different scenario in the US, where creeping default risk concerns have coincided with buoyant equity market.

It’s quite obvious that massive interventions (and expectations thereof) in the financial markets have distorted market signals.

Yet, how much government interventions can keep up with this “sweet spot” mode would something to behold about, most especially that liquidity flows have began to permeate into the commodity markets.

Eventually something has to give.

For the meantime, party on.