European default risk escalates

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Sovereign debt worries in Europe continue to trouble financial markets. The charts below, courtesy of Bespoke Investment Group, show the default risk as measured by 5-year CDS (credit default swap) prices for Spain, Ireland, France, and Germany.

Bespoke said: “Ireland currently has the biggest problems and the highest default risk. After pulling back some last week, the Ireland CDS has moved back to its previous highs. Spain, with its size, is worrying people the most, and the chart of its default risk doesn’t look pretty. For much of 2009, Spain CDS traded at prices just above CDS for France and Germany, but default risk has recently spiked to levels that haven’t been previously seen for that country. For the time being, default risk for France and Germany hasn’t hit new highs. France is getting close, however, while Germany still has a ways to go.”

Source: Bespoke Investment Group, November 29, 2010.

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