Red Lights Flashing For UK Credit Spreads According To CDS Market

Tyler Durden's picture

The CDS market, as always, is prophetic to the dot: after main deriskers in the past two weeks were Spain, Portugal and France, so far the spread blow out in these markets has materialized like a Swiss watch. Which is why Ambrose Evans-Pritchard better be looking at this week's DTCC data, because the credit market is flashing a bright red warning light over his favorite bankrupt country - the UK (incidentally, the week's largest net derisker, just after Goldman Sachs). Second in order of sovereign implosion - Ireland. The British Isles, at least according to CDS traders who time after time prove they have far more sense than their equity equivalents, are about to become a hotbed of credit activity, and not in a good way. The other countries that fill out the top 10 deriskers in the prior week: Brazil, Germany (yeah, failed auctions do that), Argentina (yeah, persistent threat of default does that too), Mexico (yeah, living next to a money printing terrorist does that), Ukraine, Korea, Belgium and China.

On the other end, the names with the most net notional reduction indicate that once again, nobody gives a rat's ass about Greece anymore (at least in derivatives... cash wishes it could say the same). Spain led the reriskers. After today's disclosure that the country is just over 20% done with funding its 2010 debt needs, this may change quite fast.  The other countries in the group are irrelevant.

Full list. (we did not add the "stolen from ZH watermark" so please just quote us when you steal this, deal?)


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_Biggs_'s picture

Duh.  Of course they are on the nose. 

casino capitalism's picture

As someone I used to work for would say, it's a sh!tshow.

Miss Expectations's picture

Someone I used to work for would say, it's a pig's breakfast.  PIIGS?

jessiejune's picture

you are the most beutiful woman i ever meet .just maybe you are the one i like most.just maybe we all hope to have a more happy and qinqie relation. work more smoothly and increase the extraction rate, we require drinking water and suit temperature properly for Flour Processing Machine

non-anon's picture

yawn, please let me know when things start getting good!

Caviar Emptor's picture

I was saying earlier tonight: the real anxiety is not the peripheral Euro nations (PIIGS etc)...although they're the test cases. The real anxiety are the BIG fish: UK, Japan, India. Fitch mentioned Japan's credit today, UK already was placed on notice, India is right behind. And as if on cue, there are political rifts forming in each of those countries that risk widening into turmoil. I joked during Dubai's meltdown that we'd bail every country in a Conga line, and looks like that might be a reality. Can you imagine Ben trying to reflate the US, PIIGS, UK and Japan?? Holy crap we're in deep!!

whatsinaname's picture

India will come out fine out of this. Atleast fixed deposits yield 8-9% to savers in savings accounts versus 0.25 here in the US. Its moronic 401k investors who will lose their shirts investing in Indian equities which are in a humongous bubble.

Caviar Emptor's picture

India's debt/GDP is over 59% for 2009 (CIA Factbook). However as you pointed out interest rates are climbing and that's been discussed as a major problem for refinancing of this debt. Most of India's public debt is owed to natives not foreigners and that puts it in a category like Japan. Clearly they're heading down the same slippery slope. 

tmosley's picture

I would agree if and only if they embark on a gigantic Keynesian spending binge.  I haven't heard any reports of such a move, so I doubt it.  Rather, they are simply an industrializing nation of prolific savers.  I see no evidence to indicate otherwise, other than a random ZHer's assertion.

Observer's picture

Also India has a large and growing working age population that has the bulk of their productive lives ahead of them. You(We) are what your(our) demographics are. India is also investing in education and the caste system is being challenged successfully especially in the southern states with positive results for the erstwhile disadvantaged castes. I know all this because I am Indian. I now live in London(since last year) and have also lived and worked in Central Europe over the previous 5 years

SWRichmond's picture

I still maintain that, when the post-mortem on this thing is written, it will be Iceland that dealt UK's banks a mortal blow, and perhaps made the rest of the world start looking seriously at their own banks' balance sheets.

As a side note, it appears that ketchup is once again a hunger-fighting vegetable.

Caviar Emptor's picture

Banco Popular profits fall 9%: Spain's third-largest listed bank reports a fall in net interest income and fees wh...

Mitchman's picture

Tyler, the charts in these colors are illegible.  Otherwise, another great article.

jeff montanye's picture

is united mexican states a joke, freudian slip or true?  the article says "u.s."  also why no gross notional for argentina?  i ask like i actually understand this stuff.  

Arm's picture

You don't have the monopoly on "united states".

Official name - Federal Republic of the United States of Mexico


If it offends you we will proceed to change the name to something more to your liking

UncleFurker's picture

Well, if I wanted to be pedantic I'd probably stick my oar in and say it's actually "Los Estados Unidos Mexicanos" or "La República Méxicana", but I don't want to be, so I won't.

girl money's picture

shhh, lest you give away the stealth "stolen from ZH" watermark, gentle sir.

Rogerwilco's picture

Bill Gross warned in February that UK banks were sitting on nitroglycerin. Troubles in London would make Greece seem like a squirrel fart in a hurricane.

Janice's picture

Squirrels produce a form methane gas when expelling flatulence which could contribute to global warming.  It is in America's best interest to tax the citizens who allow farting squirrels to cohabitate within their property boundries.  : )

hedgeless_horseman's picture

Tree rats.  Kill 'em all...make savory stew.

SWRichmond's picture

Squirrels are yummy but you gotta watch out for the damned tiny bones.  They're real easy to skin, too.

Postal's picture

Darn you! Now I want mom's squirrel dumplings. Yum! :-)

Caviar Emptor's picture

Can't make it up Dept:

 Thu, 07/16/2009 - 05:08  in 

A US judge dismisses a defamation lawsuit filed by Donald Trump against an author who said Mr Trump was a millionaire not a billionaire.

Mercury's picture

Go for Broke!

Man, especially with The UK in the lead this is starting to look like Monty Python's Upper-Class Twit sketch.


Mr Lennon Hendrix's picture

Britain, we have been waiting for you.....

"Pedal to the metal gunning for the cliff?!  OH SHIT!  Action roll out of the vehicle with your bug out bag in tow now!!!"  Says our hero.  Will you be around when TSHTF?  I hope so.

doublethink's picture


Britain's leading constitutional expert has warned City traders to brace themselves for a 10-day delay before the next Government is announced in the event of a hung Parliament.


Assetman's picture

Because we all know that... everyone likes a well-hung Parliament. (?)

MsCreant's picture

Naughty Assetman!

So many more jokes, so little time.

SWRichmond's picture

"They said you was hung."

"And they was RIGHT."

Mentaliusanything's picture

OH Tyler, your just a barrel of laughs.

for what its worth - Australia had a 0.9% boost to inflation for the March quarter CPI . PPI was just as scary. Why do I have the feeling that Ben's Inflationary Chickens are coming home to Roost, especially since your Producer price index is heading up like a rat up a drain pipe. 3 years =15% short term interest Rates and a VAT tax to boot to pay for the Largess of Bens EGO. (and thats one huge ego)

williambanzai7's picture

You just cant hide the shit forever....

Harry Roubini

VegasBD's picture

Mexico (yeah, living next to a money printing terrorist does that)


that made my night, thx

of course the lakers winning by 30 helps too.

VegasBD's picture

Mexico (yeah, living next to a money printing terrorist does that)


that made my night, thx

of course the lakers winning by 30 helps too.

freebo's picture

Time to swap some more of my pounds for gold, hold on, its how much???

excellent's picture

Funny thing is that people still don't get it. I can see why easily, they're so entertained by all these distractions...

Cyan Lite's picture

Looks like the EURo just fell off a cliff...

Gawdfather's picture

Bizarre: right after reading this I went to see what G/U was doing and as soon as I clapped eyes on the chart the pound got nailed for almost 50 pips in 10 minutes. The power of ZH is something to behold, haha.

john_connor's picture

Yes, those of us in the ZH community have been mumbling about Gilts and the GBP for weeks.  The inbred US/UK shell game oligarchy is teetering.

Boston Wealth's picture

....another brokerage firm in the spotlight... but I guess GS takes the limelight

from the great Commonwealth Of Massachusetts:

Secretary Galvin Charges Merrill Lynch with Improper Sale of Unregistered Auction Rate Securities to Banks

jm's picture

Question.  Is the Portugal CDS curve inverted because of desks selling 5 yr protection and buying 1yr protection?

If no default in the near term, then it will probably not default at the 5Y, and you cash in.

If it does default, then both contracts die, and you are even. 

Instant Karma's picture

Hmmm. As long as a country has a central bank willing to print money, there can be no default on the sovereign debt. Interest rates may rise, and the currency may fall, but, in theory, the debt can be serviced and rolled over and issued.

Companies can't do that. Greece (trapped in the EuroZone) can't do that.

Funny thing about Europeans. They love gold. Of the top holders of gold in the world listed by the WGC, Germany, Switzerland, France, and Italy are right up there. So as the Euro is unraveling what do you think Europeans are buying? GOLD.

AnAnonymous's picture

No. US (and others) credit emissions go that fine because newly emitted credits are valorized by others' wealth.

Most if not all countries in the world need to buy commodities to support themselves.

When one buys a USD, one buys an entry ticket to the world market of resources. This is what gives value to the USD. People know that when they buy one USD, they can buy oil and so many other mineral assets. This is what they look for. 

Two obvious limitations to the scheme:

-countries valorizing with the wealth the emission of US credit say stop. Very unlikely. This move will endanger the first world and be treated as a casus belli. In an extortion scheme, the extorted is not free to walk away, just like that.

-countries valorizing US new credits run out of wealth. They'd like to help, to yield their wealth to support the scheme of extortioners but they simply can no longer.

At this point, it is over. And you can check for sovereign default.

SWRichmond's picture

As long as a country has a central bank willing to print money, there can be no default on the sovereign debt.

Printing money to monetize debt IS default, just a different kind. 

tmosley's picture

Companies can print stock certificates just as easily as a country can print currency.  The effect is the same.  Eventually, the shares become worthless and/or the shareholders revolt.

plocequ1's picture

Its all good. Uncle Ben will announce a Bailout and the market will Rally. Now go back to fucking Bed. The old lady is waiting for ya.

cplusplusandloathing's picture

Florida made the top 20!  I would call it a Tebow bubble, but it might have something to do with all those drained swamps balls deep in toxic debt.  Maybe Jeb can trade the Florida State sororities and three tons of blow to Wall Street for a bailout.




primefool's picture

This is a popular misconception that countries can never default on debt issued in their own currency - because they can always print money. Not proven by history - eg.Zimbabwe, Russia 1998 etc etc. Why is Japan govt debt not AAA ( denominated in Yen)? In fact Japan has the same credit rating as Botswana!

The problem is once you get an uncontrollable rise in debt and interest rates start rising - it turns into a positive feedback spiral - the more the debt grows, the higher interest rate demanded by investors causing an accelerating rise in debt. Then the CB has to print at an accelerating rate - and winds up chasing its own tail and collapsing in hyperinflation.

primefool's picture

Just to finish the thought. Therefore it might make sense for a country to default on its debt rather than pursue the out of control money printing that will inevitably lead to hyperinflation . And countries have done this.