Updated Ranking of Global Credit Default Risks

Consistent with my earlier post, FT’s James Mackintosh: US Credit Risk Greater Than Indonesia, Bespoke Invest has updated tables of the 5-year Credit Default Swaps (CDS) reflecting on default risks of 60 countries.

On a year-to-date basis, Greece has the highest default risk while the US has seen a hefty nearly 20% increase.

Major ASEAN nations have also seen an uptick in default risks with Thailand registering as the worst performer.

Meanwhile major European economies posted most of the improvements over the same period.

But it’s a different view when seen from the ranking in terms of CDS prices.

The biggest improvements seen among European nations have been as consequence to the previous actions, where the nations affected by the PIIGS crisis have led to a contagion as seen with the prior price surges.

And almost along the lines of Newton’s second law of motion, where for every action there is an equal and opposite reaction, the previous steep increases has prompted for equally substantial declines.

What this seems to suggest is that the Greece crisis appears to be isolated for now.

And Europe's performance can be measured relative to the major ASEAN economies. While CDS prices of the ASEAN contemporaries did suffer some deterioration, in the context of prices, ASEAN CDS remains below the levels compared to the prices of nations affected by the PIIGS crisis.

So the above only reveals of the degree of price volatility or the rapid changes in the market’s perception of credit risks.

As Bespoke notes,

The countries that investors believe are least at risk of default are currently Norway, Sweden, Finland, and Denmark. The US used to be the least at risk of default, but CDS prices here have ticked up 20% so far in 2011. US default risk is still low relative to the rest of the world, but any tick higher is something we don't want to see.

Credit rankings can shift swiftly and meaningfully. All these depend on the policies adapted.

So far, the practice to inflate debt has subdued default risk concerns on some the major economies as the US. However, the law of the late economist Herb Stein should apply “If something cannot go on forever, it will stop”.