And so we see another tipping point in action: while absolutely nothing has changed in the fundamentals of Europe's insolvent peripherals, today, for the first time since early January, we are seeing an absolute bloodbath in the risk gauges of the European periphery. As the PIIGS list below shows, spreads are surging, and while it is no surprise that Greece is now trading north of 1200 bps following a weekend full of Greek default chatter, the important observation is that Spain and Italy are once again in the default mix.
- Portugal 615 (+15) - officially insolvent
- Italy 156 (+13)
- Ireland 588 (+21) - officially insolvent
- Greece 1225bp (+89) - officially insolvent
- Spain 250 (+16)
As usual we are amused by the massively delayed reaction in what some continue to foolishly claim is an efficient market. Of course, expect a major overshoot of all risk indicators now that the world's attention is once again focused on Europe. Exhibit A: EURUSD which is now at 1.4290, even as it was trading at 1.45 on Friday. Hysteria is back.
The cost of insuring Greek debt against default rose on Monday after a newspaper report that Greece had asked to restructure its debt, though the country's finance ministry later denied the report. Five-year credit default swaps (CDS) on Greek government debt rose by 84 basis points to 1220 bps, according to data monitor Markit. This means it costs 1.22 million euros to protect 10 million euros of exposure to Greek bonds.
Greek finance ministry sources have denied a newspaper report that Greece told the IMF and the European Union earlier this month that it wants to restructure its debt.