Mama Mia, We're All PIIGS Now!

The Markit iTraxx Europe hit 120 basis points for the first time since early July, the Markit SovX WE reached 209 bp’s, a new record. French CDS spreads closed above 100 for the first time, Belgium broke through 200 with Italian spreads rapidly closing in on the Spanish level around 300 bp’s.

“The sovereign debt contagion has spread beyond the eurozone’s periphery and into the club’s core.”

Gavan Nolan


Well, it seems like we’ve finally become PIIGS. all of us here in Europe. No matter how many bailouts, rescue packages and stabilizing mechanisms the political leaders come up with, the financial crisis just keeps on rolling. We’re approaching the end of 2010. The crisis have then lasted for more than two years, and it still seems like a beginning rather than an end.


“What little risk appetite is left in Europe appears to be dwindling as we head into year-end,” credit analyst Gavan Nolan writes in Tuesday’s Markit Intraday Alert.

“The sovereign debt contagion has spread beyond the euro zone’s periphery and into the club’s core,” he notes.

France and Belgium, both founder members of what is now the EU, saw their CDS levels reach unprecedented levels today as investors shied away from risk.

It might seem strange to talk of a AAA sovereign such as France as “risky”. But the French government was forced to quash rumours that the country could lose its stellar rating.

French budget minister Francois Baroin says that there is “no risk” and “no concern” about its rating. Finance minister Christine Lagarde says that France is among the “best risks in Europe”.

Now, I’m getting really tired of hearing all these “the-worst-is-over”-statements. Everyone knows it isn’t true.

I have presented this figure before, and I'll do it again

The French spreads are wider than all of the Markit iTraxx SovX Western Europe index constituents bar – the PIIGS.

Today was the first time French CDS has closed above 100 points.

Belgium also broke through a key barrier. The country’s spreads widened beyond 200 bp’s to a level usually associated with the peripherals.

“Indeed, some traders are placing it in the same group as Greece, Ireland, etc, or calling it “semi-core”. Its high debt levels and political instability have been a concern to some investors for some time,” Gavan Nolan writes.

Italy, another country that would regard itself as at the core of the EU (it was also a founder member), shares Belgium’s weaknesses.

Its spreads have widened sharply this week as the markets reassessed its credit standing.

High national debt and poor growth prospects are unattractive for most credit investors, and it is moving closer to its fellow peripherals. Not an easy achievement given that they hit new record wide today.

The Markit SovX WE reached 209 bp’s, a new record, before settling back later in the afternoon. This is the first time the index has gone beyond 200.

“The panic was not restricted to sovereigns. The corporate market was also infected by the concerns around government creditworthiness,” Nolan points out.

The Markit iTraxx Europe hit 120 bp’s for the first time since early July, driven by names based in the peripheral countries and France.

“Defensive names such EDF and GDF Suez widened due to their close relationship to the sovereign credit,” Nolan adds.

However, there was some improvement later in the day as the panic subsided.

“Spain’s auction on Thursday and the ECB announcement the same day will play a major role in shaping sentiment,” Gavan Nolan at Markit Credit Reasearch concludes.

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  • Markit iTraxx Europe 116.5bp (+3), Markit iTraxx Crossover 520.5bp (+7.5)
  • Markit iTraxx SovX Western Europe 204bp (+7.5)
  • Markit iTraxx Senior Financials 172bp (+7)
  • Sovereigns – Greece 955bp (+3), Spain 369bp (+18), Portugal 555bp (+17), Italy 271bp (+26), Ireland 615bp (+3), Belgium 206bp (+25), France 107bp (+8)

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