US and German Credit Default Swap Risks Skyrocket

Credit default swap spreads against Germany and the U.S. are at all-time highs.

As the Telegraph reports:

Credit default swaps measuring risk on five-year sovereign debt touched 90 basis points on Tuesday and looks poised to rise above French debt for the first time.***

“The entire Landesbanken system is rotten,” said Hans Redeker, currency chief at BNP Paribas.”Credit will collapse if they are allowed to fail so they have to be recapitalized. But it is not just the banks in trouble: Germany’s entire export structure has been hit drastically.”

“German CDS spreads are going massively higher. German bank exposure to Eastern Europe, although less than Austria, is still very high. The markets have started to price in a de facto bail-out of Eastern Europe and they think that Germany that will have to pay the bill,” he said.

The rating agency Standard & Poor’s said in a report on Tuesday that the region was “shuddering to a halt”, with a number of countries were “crumbling under the weight of high foreign currency debt.” It is unclear whether they can roll over debts as Western banks retreat to their home market.

S&P said foreign debt is 115pc of GDP in Estonia, 103pc in Bulgaria, 93pc in Hungary, all far above danger level. “All the ingredients of a major crisis are in place,” said Jean-Michel Six, the group’s Europe economist.

Remember that credit default swaps against Germany were 56 basis points a month ago.

And, as of February 20th, credit default swaps against the U.S. rose above 100 bps, up from 70 bps a month ago.