The Street
January 10, 2011
Even though Greece, Portugal, and Ireland bonds are trading firm today, don't be fooled into thinking markets are getting more constructive. ECB has reportedly been actively buying today, and so bond spreads are not giving a clean read on market sentiment.
Instead, look at CDS prices, all of which are significantly higher today for the periphery. Greece five-year CDS trading at 1067 bp vs. 1056 bp Friday, Portugal at 550 bp vs. 533 bp, Spain at 358 bp vs. 352 bp Friday, Italy at 258 bp vs. 247 bp Friday, and Ireland at 656 bp vs. 622 bp Friday. These are all at or near record highs despite the Greek and Irish bailouts, despite the creation of the EFSF, and despite ongoing ECB bond purchases.
In the core eurozone, Belgium continues to be hit hardest, with five-year CDS at 253 bp vs. 246 bp Friday which is also a record high. France is holding fairly steady at 103 bp, but near record highs and we continue to think it's only a matter of time before it too succumbs to the contagion given what we see as shaky fundamentals.
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