The insurance cost against European sovereign debt was up at record highs this Monday driven by growing concerns of a Greek default.
As most European markets were closed for a bank holiday this Monday, volumes were low and so was liquidity, causing the Greek five-year CDS credit default swap spread to widen quicker. CDS are derivatives that function like a default insurance contract for debt.
Greek five-year CDS spreads were recorded at 1612 basis points this morning, which is a 70 basis point increase to the spread from Friday, thereby increasing the cost of the CDS.
At the moment there appears to be a deadlock over a solution to the Greek debt issue, with no agreement reached by the troika over participation of private sector creditors in the debt restructuring process.
Unfortunately this deadlock has spread concerns to other indebted Eurozone countries in the periphery, such as Portugal and Ireland putting their CDS spreads under pressure as well.
The five-year CDS spread on Portugal was 30 basis points wider at 763 basis points, while Ireland was 24 basis points wider at 736 basis points.
Despite expectations of a July rate hike by the European Central Bank in July, there is little that will help lift the Euro at the moment unless a concrete a viable solution to the Greek debt issue is finalized soon.
“Macro risk rules keeps many investors on the sidelines, short of any clear conviction and rather reducing risk,” said Anke Richter, credit strategist at Mizuho. “Unfortunately, we cannot see this investor apathy changing unless some positive momentum either on U.S. growth or Greece comes along.”