Credit markets in areas like China, Brazil, and Italy have gotten investors worried over the last couple of weeks, so let's take a look at how default risk has changed recently for "problem" countries. Below are long-term charts of five-year credit default swaps for the sovereign debt of Spain, France, Japan, Italy, China, and Brazil. The prices shown represent the cost per year to insure $10,000 worth of sovereign debt for five years.
As you'll see in the charts, while default risk has jumped in recent weeks for countries that have seen their equity markets decline significantly, it's barely a blip relative to levels seen in recent years. The move up in default risk for Spain, Italy, and France has been very minor, and the same holds true for Japan, which has seen its stock market tank more than 20% over the last month. Only in Brazil and China have credit default swap prices made a noticeable move. Even in China, though, default risk is still well below the high it reached in late 2011. We wouldn't quite call it "sound and fury signifying nothing," but maybe "sound and fury signifying very little." We'll see how things go in the coming weeks, however. Obviously things can change quickly.