Credit Default Swaps Widen on Greek, French Sovereign Debt

by: Research Recap

The spreads on credit default swaps can be useful indicator of changing market sentiment. A widening of the spread signifies improving performance relative to historical levels, while a tightening indicates the opposite. We are pleased to offer a complimentary download of Fitch Rating’s weekly Risk and Performance Monitor, which tracks these trends.

Selected Excerpts:

  • Globally, CDS spreads resumed widening, nearly 2% on average, after a brief rebound the week before. Equity markets were stable overall, with the five-year Probability of Default (PD) Index remaining largely unchanged.
  • Sovereigns led the CDS widening last week, moving out almost 5% and driving the Average Relative Differential (NYSE:ARD) for the sector higher.

CDS on Greece reached the widest levels seen since the beginning of the sovereign crisis, while CDS on France widened 27%.

  • Financials lagged the overall market, widening 2.2% on average, and are now pricing 6% wide of historical trading levels. European banks, in particular, widened more than 5%, as worries surrounding the expiration of the European Central Bank’s (ECB) 12-month bank-lending program rattled the credit markets.
  • CDS widening within the oil and gas industry outpaced the broader market last week, and the sector continues to price, on average, 32% wide of historical levels.
  • The basic materials sector outperformed across both the debt and equity markets last week.
  • The cost of credit protection on technology firms grew less than 1% and is pricing, on average, more than 4% tight of historical levels.

Companies highlighted include: BNP Paribas, Hellenic Telecommunications Organisation, Red Electrica Corp SA, Clariant AG, Heineken NV, Adidas,GlobalSantaFe Corporation, Hasbro Inc., Halliburton Company, Motorola, Inc., Transalta Corporation, Tyco Electronics Ltd.

Risk and Performance Monitor has been made available free of charge to Research Recap users for 30 days by special arrangement with Fitch Ratings, an Alacra content partner. After 30 days, the report will revert to its regular AlacraStore price of $165.