Risk Transfer Has Begun As Germany Net Notional Overtakes Spain

Tyler Durden's picture

The last two weeks have been full of headlines regarding the volatility and decompression of sovereign spreads around the world. What has been more intriguing to us than day-after-day of discussing Greek 2Y yields or French 5Y CDS has been the relative increases in net notional credit protection outstanding on Germany. The German credit worthiness and sovereignty stands at the heart of any solution to the crises in the Euro-zone and it appears market participants are increasingly pricing in that risk transfer. This is exactly the same transmission we saw in the US when the Fed/TSY announced day-after-day of acronym-laden support mechanisms and shouldered more and more of the private balance sheet risk.

This week, both Brazil and Germany overtook Spain in terms of net notional CDS outstanding with gross notional rising around $670mm on the week for Germany. Interestingly, on the week, Italy and Brazil saw the greatest relative decompression (16% and 10% respectively), but Germany widened 5bps or 6.5% over the course of the week (as Bund yields dropped notably) taking 3rd spot among the Top 5 highest sovereign net notionals.

Data: DTCC


During 2008/9 we saw similar risk transfers in the US and Europe, as evidenced below by the drops in VIX (relative to the USA)


..and VSTOXX relative to Germany protection costs.

Chart: Bloomberg

Of course this time, we start from already elevated levels of risk with greater levels of incumbent balance sheet stress and an investing public who has seen these tricks before and is not as easily persuaded of the magical forces of a politician's or central banker's words.

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Yen Cross's picture

 Tyler? Respectfully, do you sense a default over the weekend?

oobrien's picture

How can there be a default?

They're just gonna keep printing money while hitting the folks with austerity measures.

Wash. Rinse. Repeat.


CrazyCooter's picture

Default can occur in three ways, in practical terms, which are (1) don't pay, (2) restructure, or (3) inflate. I am pretty sure inflation is on the menu. Don't expect the news bulletin proclaiming 1.

I don't think the end game is so simple, as this whole shit show is going to spin out of control for a while.


In my mind, default has already occurred and I started preparing well over a year ago. Just be safe and prepared ZHers!



Footnote: that was agreement ... came across kind of terse after it went up ... but that is sort of my nature!

CrashisOptimistic's picture

The subject is Europe, but very much like last month's 6% CPI print, this morning's 4.8% CPI print is being HUGELY ignored.

THAT'S FIVE FUCKING PERCENT, and sportsfans, September's number is what decides next year's Social Security raise.  Yes, that is done with one month's number.  Either today's or the September number released in October.  Given WTI's runup this week, next month's number is on track for higher.

The 10 Year Debt Ceiling Bullshit Did NOT have 5 or 6% inflation in the projections.  Every state and local pension plan in the nation is looking at a 6% jack in January, and the S&P is down for the year.

Things are going to fucking blow up and no one is noticing.

e1618978's picture

It was 3.8%, not 4.8% - and last month was 3.6%, not 6%.

CrashisOptimistic's picture

From Bloomberg:

"Inflation at the consumer level remained surprisingly warm in August. The consumer price index in August barely slowed to a 0.4 percent increase, following a strong 0.5 percent jump in July. The August figure exceeded the median projection for a 0.2 percent increase. Excluding food and energy, the CPI rose 0.2 percent, matching the pace the month before."

0.4% X 12 (annualized) is 4.8%.  It's the headline number.

0.5% from last month is 6% annualized, and was the headline number last month.  

xtop23's picture

Are those percentages being calculated the way the government / FED does it or Shadowstats ?

You actually both may be correct depending on who you're using as a benchmark.

In the end its irrelevant. This farce will play out until it doesn't and Ragnarok cometh.

( Regardless, at least the FED CPI will be re-evaluated upward anyway so those quoted numbers are fantasyland )

CrashisOptimistic's picture

Shadowstats doesn't matter.  It does not determine pension payment increases.

Only the official numbers do.

I'm going to correct myself.  September is the important month because it represents end of 3rd quarter.  It is the CPI-W at the end of Q3 compared to the CPI-W the last year there was a COLA (Q3 2008) that determines the amount of SS (and other pension) COLA.

The Q3 2008 CPI-W was 215.49.  The Q3 avg (lacking Sept's number) is 222.54.  No change in September would yield (222.54 - 215.49) / 215.49 =  3.3% raise.  That would be no inflation in September.  

If September has another 0.5% number like July's (that 0.5 was rounded down slightly), it would be a 4% raise.

These are numbers well beyond all projections.

Oh regional Indian's picture

When it finally rains in spain, then the world will feel the pain.

Anyone wondering how that most defunct of PIIGS is hardly ever in the bad news section of the press lately? Hmmmm? In-debted, under-employed Spain? Housing bubble Spain and mostly......

As many centuries ago, Europes Sword into South America's side.... Banco (Not in the least Blanco) Santander......

The more thigns change, the more they remain the same same.

It's Spain.....


Axis of Evil Doing

Michael's picture

It looks like Timmy Geithner's presence in Europe this week is embarrassing the USA again just like he did in China when they laughed in his face.

Ok, they scrubbed the Youtube video of it so this will have to do, please post it if you can find it.

Tim Geithner Gets Laughed at Reassuring US Dollar and Economy




Michael's picture

When world central banksters let some of their member banks get hurt by a Greek default, and when those members get hurt, will they take revenge?

That is the question.

We're talking some aristocrat families of Europe going kaput here.

BandGap's picture

Bingo! Santander is a beast in South America.  Or a lesion. 

There are so many webs interconnecting this shit that it's hard to follow, except when you step back. That's when you see the house of cards and something tugging on the first floor Jack of Spades.

High Plains Drifter's picture

come on yen, little timmie is over there now handing out money. how can there be a default.........?  another words. message to the european banks. we got your back because our banks have so much of your garbage on their off balance sheet books, that they have no choice but to get involved in the bailout.  as  a gold and silver bug, i see this stuff and i yawn.  i love it (sort of) when a plan comes together.......

Yen Cross's picture

The Polish Drift? Yes, you are correct.   I'm not sure???    The <> of the weekend. Thanks for your time!


   For the Forum, we are discussing the lending terms for the E/U to function... Timmah in Poland to reitterate payback!!!

wombats's picture

Bullish for Goldman?  It wouldn't decrease their bonus pool would it?

Yen Cross's picture

A Fortutius thought>  Being Sovereign, Is so   "GREENSPAN"!!!!

LongSoupLine's picture

Einstein's definition of insanity is quite fitting here.

wisefool's picture

Einstien could not even figure out his personal income tax. Timmy can solve this ... err wait.

oobrien's picture

So is this fucking thing gonna crash or not?

I'm tired of waiting.


Galen Slade's picture

Exactly - they'll just keep printing and kicking the can down the road, probably for months still.  Wonder when the Bernanke will get the idea to just print and not bother buying bonds with the money.  It's all just 1's and 0's anyway, what's a few more '1' bits?

HoofHearted's picture

I like that idea of mixing metaphors...soon they'll kick the can down the road and right into the house of cards. But how soon? With the big hootenanny where all Central Bankers joined hands and sang "Kumbuyah" today, it might be longer than we think...

whstlblwr's picture

Anyone see this? Someone just forward:


* Many people do not know that the Federal Reserve is a private company and not a government agency.
* In fact, the Fed is not part of the government in any way.
* We believe that abolishing the Fed needs to be our number 1 national priority.
* We intend to beat the Fed in court similar to the way the Big Tobacco companies were defeated.

CrazyCooter's picture

Aw shit, seriously? Lawsuits and lawyers are the answer? If it was, we would be a bit higher on the hog right now, just sayin ...



whstlblwr's picture

Aren't you just so pissed off to sue the fuck out of them? Have to be many rich shorts who are sick and tired of this bullshit too, plus consumer groups who are mad about rising food and gas.

AUD's picture

It will be as long as central banks can offer a decent profit in the form of rising bond prices. At the short end of the yield curve potential profit is all but gone. At the long end it could go on for a while yet but central banks monetising increasingly large amounts of long term debt is 'risking up' that's for sure.

Yen Cross's picture

The short end of what curve>? (:

LongBalls's picture

When they let it go it will be in the winter months. The food chain will break with no relief and it's more difficult for people to move around and assemble. So IMHO we are close if it be 2011.

GIANTKILR's picture

Screw this! I have been following this site since the beginning, and I have read this post multiple times now. "The world is going to end next week" "The summer of hell" "The winter of discontent" "The fall of the American empire" "The spring of discontent". I can't even keep the slogans sraight anymore. Honestly, this is getting tiring. I think I will start watching American idol and ignore the world. I think those people are a lot more content! Not knowing might be the best thing going!!!!!!!

wretch's picture

Here's the tough news: you're going to have to think for yourself.

whstlblwr's picture

I remember several posts about short squeeze and watch out for evil central bankers. If you hold all the power, would you just let it slide through your fingers?

It's why we have to do more than read Zero Hedge blog. What did you do today to make change happen?

GIANTKILR's picture

No changes. Just burned out on the economic collapse that never happens.


caerus's picture

it is happening...just very slowly

JohnG's picture

Just mho, things will speed up, and then BANG....it goes down.  "They" will try to hide it as long as they can.

That's why I keep much physical, and some cash because it will be needed when the "BANG" happens, at least for a little while.  Also at least three months of provisions.

I pay constant attention.  I really have not been able to sleep nuch since 1971 (Vietnam....), so that's something I take advantage of.  Doc's say that's OK.  Coping strategy??  I refuse meds, just drink, that's all.

So far, it works for me.


whstlblwr's picture

LOL, it's my point you need to work for change. If you want Federal Reserve to stop stealing from taxpayer to give to Wall Street or other countries, you need to get to work. Do your part, then you won't be so exhausted.

GIANTKILR's picture

Don't presume. Doing my part is what exhausted me.

whstlblwr's picture

Oh, sorry, I presume becuase I'm the opposite. If I'm working on what I believe is right, I'm invigorated, even if process slow, it feels better than just watching or complaining for me.

GIANTKILR's picture

Go get 'em, Slick! YOU CAN CHANGE THE WORLD!

whstlblwr's picture

We can change the world. If everyone who read this blog gets to work, we can change the world.

First time ever called Slick, sounds like you just lazy ass after all.

GIANTKILR's picture

And you sound like a troll with bad sentence composition and name calling.....There is no changing the world IF you have been reading this blog. Everything is fucked, and there is no unfucking it! Put down the pom poms and get ready for the SHTF! I am burned out on waiting for it, but it will happen....one day!

caerus's picture

i feel your frustration and share your impatience, but i believe what we are witnessing is not a cataclysm but a slow rot and a societal decay...an erosion of ideals and a silent surrender of liberty and principle...i hope that there are enough informed and compassionate souls left to forestall an apparently inevitable collapse

keep fighting the good fight

Optimusprime's picture



The slow erosion may lead to sudden and dramatic consequences, however.  My wife was driving down a familiar country road nearby, and saw to her amazement that the whole side to an apparently well-built older home had collapsed, leaving the interior visible.


Inquiries revealed that termites had been at work.

JohnG's picture

There is little to be gained by taunting a suspected troll.  Cearus?  isn't a troll.  There are many here though.  Just don't feed them, ignoring them is best.  They tire, and go away.

Raynja's picture

when they write the history books everything will have collapsed very quickly, its only slow when you are in the car wreck

rocker's picture

@whstblwr.   LOL   My point is simple.  How do we wake up 95% of the sheeple when they have been grazing on green shoots for a year.

  They are still hungry looking where they can steal a patch from the little sheep.   They have NO Clue.  

whstlblwr's picture

Wife is making me come to bed, but here I save this post I wrote for lynnybee who say the same as you:

Just read lynnybee comment that she tried to spread word and her family think she nuts. It’s not what I mean. Yes, you spread the word that end of the world coming and must stockpile goods, then people think you are nuts, most don’t have that experience and don’t look to future. Example see what is happening now in Vermont, did you hear family trapped in house on CNN, no candles, no extra food, water, they thought all would be okay. We are here on ZH because we are prescient, not many people like us. So don’t convince them things are going to be worse in future, because maybe not, I happen to believe it will be better in future after initial break.

My point is talk to people about what happening now, what they can see. Everyone can see that gas and food prices are up and it doesn’t make sense. If their house worth less, and get less money at job, why is food and gas more expensive? Now you can educate with what you know. Tell them there is Federal Reserve who print money (I say print because easier to understand, keep simple) to pay off America’s debts. They need to print because not enough revenue coming in and spending on wars, etc. So Federal Reserve printing money and money goes to banks who use it to buy stock and gas and oil and food. Keep simple. Stock market goes up, but so does gas costs for your car.

Without Federal Reserve gas prices would be…I don’t know, but I say a dollar a gallon, and food would be half the price. So show them what a higher stock market is costing them. Most people on social media could care less about high stock market, but they care about gas prices. If they believe it free market that control prices, think again. Yesterday clear example: One Fed guy mentions more support, money printing (I don’t say QE because what the hell is that), and immediately oil, gas, food prices go up. What is more clear than that???

Get to work people on Zero Hedge, spread the word.

eduard khil's picture

smile.  gold is a little cheaper for a little longer.

tiger7905's picture

John Hathaway has a great piece out on why the gold miners are depressed and why investors should have exposure to miners.





xtop23's picture

Bought Au and Ag on the dip and bought 400 more rounds of 270 for my rifle

CrazyCooter's picture

Bored drinking Shiner tonight (my project goes live on Monday - been elbows and assholes for a couple weeks now) ... so ... I'll bite ...

1 year 19 weeks (your profile age)

Um, not the beginning. ZH actually started on blogspot. Not to be pedantic but ...


Lastly, collapse is a process, not a destination. Ask any dead roman emperor.