The Sovereign CDS-To-Leverage Correlation

Tyler Durden's picture

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trav777's picture

another gambling vehicle...angels on pinheads next CDS trading underlier

Anonymous's picture

You should use NET EXTERNAL debt-to-gdp. Unfortunately, that number is not readily available. BTW, on that basis, Japan is fine.

Anonymous's picture

Could you list what countries are on tihs?

Anonymous's picture

Not a compelling fit. Remove the two outliers (top right), and a linear regression would slope DOWN (southeast).

jd2iv987's picture

yeah maybe if you are looking in a mirror? was that serious?



Anonymous's picture

True, it isn't a good fit. False, a linear regression of this data would have a positive slope, but the correlation coefficient would be no better than 0.5. My calibrated eyeball tells me a log curve would be the best fit, and the correlation coeff. would still be unconvincing.

kennard's picture

You should use NET EXTERNAL debt-to-gdp. That number is not widely available, so it may represent an arbitrage opportunity. For example, Japan looks good by that standard,

Chopshop's picture

great note TD ... if it can be arbed its gonna be.  but that does not mean that it will be done well.  and is the strategy even the 'right' one for the issue?

seems to be yet another idea to throw money at which isn't really a great one; but hey, why not, it ain't my/ your money, so ... "jim, whaddya say we ..." 

someone's gonna do it.  just find it so funny how so much actual capital and time duration / commitment / risk is actually arbed instead of just placing a directionally leveraged bet ... call it what it is when you have tenuous relationships, which are much more coincidental and lagging than anything else and anything at all but predictively accurate or actionably timely.

half-assed tongue-in-cheek: does anyone still place predictive bets or is it all just an umpteen stage attempt to synthetically hedge which, um, could work.

Joe Sixpack's picture

I see two clumps of data (around 100 bps and 250 bps), and two oultiers (around 525 bps). Given that you already dropped two outliers, I wouldn't even bet FRNs on it.

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