Information from Credit Default Swaps

Thanks to Bloomberg, we can get quotes and charts for Credit Default Swaps (CDS) on many countries.  The easiest way to think of a Credit Default Swap is that it lets one party buy protection from another party for a credit default on a bond.
The quote price indicates the yearly cost in thousands to buy protection on bonds with a face value of 10 million. Following are links to quotes and charts for a few countries. These are quotes to buy protection for 5 years. I am listing them in order of cheapest to most expensive, so the one at the top is perceived by the market to have the best credit quality.
  1. Sweden
  2. Germany
  3. United States
  4. UK
  5. China
  6. France
  7. Brazil
  8. Italy
  9. Spain
  10. Ireland
  11. Portugal
  12. Venezuela
  13. Greece

After looking at the 1 year CDS charts of the European countries, I find something encouraging. Only the CDS of Greece, Ireland and Portugal are near highs. The CDS of Italy, Spain and other European countries, although they have risen lately, are below the levels of 6 months ago. I think this indicates that the problem at the moment is limited to Greece, Ireland and Portugal. These are smaller countries and if it remains limited to them then the EU and IMF should be able to manage the problem. I think this is one reason the Euro hasn’t fallen more dramatically against the dollar and the stock market has not sold of very severely. This needs to be monitored continuously, but I think this is a positive divergence that in spite of credit downgrades recently, CDS for Italy and Spain are below the level from 6 months ago.

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