Sunday 30 January 2011

Reality check

" It currently costs the same to buy 5-yr protection on Egyptian bonds (454 bps) as on Portuguese bonds (456 bps)". By transitivity, Portugal is also riskier than Iraq. That is all.

h/t to Angry Bear

1 comment:

  1. Assuming market eficency, I think what the markets are saying is that probably Portugal defaulting on its debt is a sound business decision....

    If not why would Portugal be riskier then Egypt?

    Correct me if I'm wrong, but in modern history, there aren't many cases of default by a developed country.

    The ones I can think about are Russia and Argentina, and those situation were due to the exchange rate.

    Now, either we are facing speculative CDR markets (on the periphery countries) or defaulting is something the markets assumes to be logical.

    Interesting, considering that the ECB and the Euro mecanisms prevent a major spread of the problems of defaulting.

    Probably, we have to look at it like when a US state defaults on its bonds, is it a major crisis?

    Ireland can't do it, because the whole finantial system would collapse, and Greece would have immediate liquidity problems, but with Portugal maybe isn't such a bad idea. Worked for Iceland.....

    Yep, that would be the BPN way...