Euro Area Credit Market (Massacre) Charts
Below is our customary collection of CDS prices, bond yields, euro basis swaps and several other charts. Both charts and price scales are color coded. Prices are as of Tuesday's close.
It was an across-the-board massacre on Tuesday. It is no exaggeration to state that the debt crisis has never been closer to getting completely out of hand. A little over two weeks ago we thought that there was perhaps a small chance for things to calm down again for a while, but we were clearly mistaken.
Since then, things have gone from bad to worse in what seems an unseemly hurry. As the title of today's post indicates, the crisis is now eating away at the viability of the "core," with only very few euro area sovereigns remaining above the market's suspicion.
Truth be told, not all of them deserve it, alas, the market has been quite diligent in winnowing the undeserving from the ranks.
5 year CDS on Portugal, Italy, Greece and Spain – CDS on Italy and Spain both have reached new highs once again.
5 year CDS on France, Belgium, Ireland and Japan – CDS on France and Belgium are now "going vertical."
A separate chart breaking out CDS on French debt. From an Elliott Wave standpoint we would guess that this is a third wave – the recognition wave. What is being recognized is that France's credit rating is probably toast.
5 year CDS on Bulgaria, Croatia, Hungary and Austria – big one day jumps higher across the board once again, especially in CDS on Austria (up 20 basis points or roughly 10% on the day).
5 year CDS on Latvia, Lithuania, Slovenia and Slovakia – also moving higher again, if at a somewhat slower pace.
5 year CDS on Romania, Poland, Slovakia and Estonia – Estonia is the best of these in absolute terms, but in relative terms it is now seeing the fastest rise of this quartet.
Three month, one year and five year euro basis swaps – these look like they will break support at any moment.
Our proprietary unweighted index of 5 year CDS on eight major European banks (BBVA, Banca Monte dei Paschi di Siena, Societe Generale, BNP Paribas, Deutsche Bank, UBS, Intesa Sanpaolo and Unicredito) – say hello to a new all time high in this index, on account of a huge one day jump of almost 30 basis points.
10 year government bond yields of Italy, Greece, Portugal and Spain – Italian yields back above 7%, Spanish yields at a new high.
10 year government bond yield of Austria, the 9 year government bond yield of Ireland, UK Gilts and the Greek 2 year note. The jump in Austrian bond yields has gone from "remarkable" to "striking" to "scary" in the space of one week. Greek yields continue their bizarre journey toward absurdity.
5 year CDS on the two Austrian banks Erstebank and Raiffeisen continue to break higher with some vigor as well. These are indexed, absolute values are currently 344 basis points for Erstebank and 353 for Raiffeisen.
10 year government bond yield of Belgium – this is also beginning to look precarious.
10 year government bond yield of Belgium, weekly. Here it should be noted that in 2008, these yields reflected a price premium or inflation premium. Currently all they are reflecting is a risk premium, i.e. the market perception of growing default risk.
The 10 year bond yield of France. This looks pretty worrisome as well.
10 year bond yield of France, long term. If it is to come down again, now's the time. Should this trendline break, a move to the next level of lateral resistance becomes highly likely.
Italy's 10/2 year spread, long term. Once again approaching inversion.
Portugal's 10/2 inversion once again widens a little.
Inflation adjusted yields show that inflation expectations are now falling faster in the euro area than in the U.S.
5 year CDS on Australia's "Big Four" banks – bouncing again.
The structure of the decision making bodies of the ECB. Jürgen Stark is about to be replaced by Jörg Asmussen (the chief economist is traditionally a German), the replacement for Lorenzo Bini Smaghi (who is leaving due to the new president being an Italian as well) has yet to be determined, but will most likely be a Frenchman.
Regarding Belgium, here is a famous (in Belgium, anyway) song from better, more lighthearted times:
Potverdekke! by Mr. John.
Jens Weidmann's name meanwhile reminds one of the German archaic term for "hunter," which is "Waidmann." Even today, hunters greet each other by saying "Waidmann's Heil!"
Ironically, there is a song called Waidmann's Heil by the German metal band Rammstein, the chorus of which goes "Die Kreatur Muss Sterben" ("the creature must die"). This is probably what every politician below 47 degrees North latitude in Europe is currently secretly thinking when contemplating Weidmann.
We doubt he will do them the favor, but he may eventually be outvoted.
Rammstein, Waidmann's Heil (sounds appropriately apocalyptic as well).
Lastly, here is another Spiegel article we would recommend to our readers, dealing with the German government's plans to transfer more power to Brussels (as discussed yesterday), which will necessitate that the German constitution be altered – which in turn will likely require a referendum.
Charts by: Bloomberg, M&G Investments, Portfolio.hu, Der Spiegel