Place Your Bets On Which Sovereign Nation Will Fall First

Now we can all watch the bets being placed on the solvency of sovereign nations. Place your bets folks.  It is amazing that we can see in real time the default risk of sovereign nations but US Banks still can’t find a way to value mortgage backed securities made up of a few hundred mortgage loans.

First internet access for sovereign CDS
By David Oakley
Published: October 23 2008 22:12 | Last updated: October 23 2008 22:12

Government credit default swaps are to be published on the internet for the first time, in a sign of the increasing importance of these instruments as the economic and financial crisis deepens.

Only a few months ago, the cost of insuring government debt was rarely focused on by investors because most countries were considered stable. This was reflected in their relatively steady CDS prices, which provided little opportunity to make money.

But since the collapse of Lehman Brothers last month and the decision of governments to guarantee financial debt, this has changed. Even the biggest and richest economies, such as the US and UK, have seen sharp swings in their cost of protection.

Markit, the data provider, will provide the prices on its website in the next week, together with the prices of the main CDS indices that track the credit risk of companies in Europe, the US and Asia, which are already published.

Suki Mann, credit strategist at SG CIB, said: “Sovereign credit default swaps have become sexier as the economic health of governments and their economies has become the story. They are much livelier now than they were only a few months ago. More investors are looking at them.”

The CDS prices of the emerging market nations have seen the most dramatic movements of late.

Argentina, for example, saw its CDS price jump to 4,000 basis points - the highest sovereign spread in the world - on Thursday. This means it costs $4m to insure $10m of Argentine debt over five years. It has jumped nearly 1,000bp this week. Other big movers include Russia, which has jumped to 1,000bp; Ukraine, trading at a record 2,800bp; and Pakistan, which saw prices rise to 3,000bp at one point on Thursday.

These countries are all suffering from the dramatic rise in risk aversion and deepening fears over the severity of the global slowdown.

Credit default swaps have grown dramatically in the past five years with the market now valued at $54,000bn in outstanding contracts.

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