Credit Default Swap Warning

From Bloomberg:
European Sovereign Debt Risk Heads for Biggest Increase in at Least a Year

Confidence in the ability of European governments to resolve the region’s budget crisis is waning, with a gauge of sovereign debt risk heading for the biggest monthly increase since it was created a year ago.

The Markit iTraxx SovX Western Europe Index of credit- default swaps linked to 15 governments is up 38.75 basis points so far this month at 153.5, according to data provider CMA. Swaps on Italy, Ireland and Spain are set for record one-month increases. Contracts on Portugal are set for the biggest rise since April and Greece for the most since June.

The region’s so-called peripheral nations face slumping growth as austerity measures introduced to cut budget deficits to European Union limits curb consumer spending and reduce tax take. A slowdown in the U.S. economy is also triggering concern there will be a global double-dip recession.

“Weaker data has really heightened concern about a slowdown in the U.S. economy, which could impact Europe,” said Brian Barry, a credit strategist at Evolution Securities Ltd. in London. “People haven’t been 100 percent convinced yet we’ll be able to come out of this without a sovereign default.”

Comments