Spain May Not Be Uganda, But Germany Is Chile

Tyler Durden's picture

While we discussed the definitive new world geography last week, it appears the CDS market has decided to add a new parallel for us, Germany is now Chile (in terms of 10Y restructuring and devaluation risk). As a reminder, Germany's credit risk has risen by almost 50% in the last 3 months to record highs, and has converged higher towards Europe's GDP-weighted average sovereign risk in the last 2-3 weeks.

 

 

and as a reminder - here is Germany's 10Y CDS (interestingly we rallied modestly today - perhaps on the back of Merkel's restatement that there will be no new aid package - or more risk transfer)...

The point being that Germany's credit risk has converged over 20bps (quite notably) higher towards the GDP-weighted sovereign risk of Europe in the last 2-3 weeks as belief in the risk-transfer union grows and today, that has reverted by around 10bps (as hope fades we suspect).

Charts: Bloomberg

h/t Alex Gloy