Chinese Sovereign Risk Spikes Most Since Lehman

Tyler Durden's picture




 

With the nation's short-term funding markets in crisis mode - no matter how much they are jawboned about temporary seasonal factors - it seems yet another indicator of stress is flashing the red warning signal. China's sovereign CDS has spiked by the most since Lehman in the last 3 days - up 55% to 140bps. This is the highest spread (risk) in 18 months and looks eerily similar to the period around the US liquidity market freeze. Hedging individual Chinese bank counterparty risk is hard (given illiquidty) and so it would seem traders are proxying general risk of failure via the nation's sovereign risk (and stocks which also languish at post-Lehman lows). On a related note, Aussie banks have seen there credit risk rise 50% in the last month as they suffer domestically and from the China contagion.

China's 5Y CDS spiked to 18 month highs...

 

as CDS is tracking 1-month SHIBOR extremely closely...

 

and the more liquid derivative play on this weakness - Aussie Bank CDS (pressure by domestic and Chinese issues)...

 

Charts: Bloomberg

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