– Spain May Not Be Uganda, But Germany Is Chile (ZeroHedge, June 18, 2012):
While we discussed the definitive new world geography last week, it appears the CDS market has decided to add a new parallel for us, Germany is now Chile (in terms of 10Y restructuring and devaluation risk). As a reminder, Germany’s credit risk has risen by almost 50% in the last 3 months to record highs, and has converged higher towards Europe’s GDP-weighted average sovereign risk in the last 2-3 weeks.
and as a reminder – here is Germany’s 10Y CDS (interestingly we rallied modestly today – perhaps on the back of Merkel’s restatement that there will be no new aid package – or more risk transfer)…
The point being that Germany’s credit risk has converged over 20bps (quite notably) higher towards the GDP-weighted sovereign risk of Europe in the last 2-3 weeks as belief in the risk-transfer union grows and today, that has reverted by around 10bps (as hope fades we suspect).