Wednesday, November 24, 2010

Credit Default Swaps Continue Upward Trajectory in Much of Europe

The Markit iTraxx Financial Index of credit-default swaps on senior debt rose 6.5 basis points, or 0.065 percentage point, to 157.5. basis points.

The Markit iTraxx SovX Western Europe Index of contracts on 15 governments reached a record high 181.5 basis points.

Credit-default swaps on Lisbon-based Banco Espirito Santo have climbed to a record 722, according to CMA. Contracts on Banco Santander are at a five-month high of 236.

Bottom Line: Traders are very nervous about the PIIGS, and much debt held by European banks is underwater.

There are only three options from here:

The countries in trouble default.

The EU starts to print serious amounts of money. (EU inflationary)


Countries pull out of the EU and revert back to their old currencies, and print those at will to pay off their debt. (Inflationary at the country level)

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