The cost of insuring sovereign debt against default climbed 30 per cent on average last quarter amid Europe’s escalating fiscal crisis, according to CMA DataVision.
Credit default swaps on 93 per cent of the 70 governments tracked by CMA rose, with Greece temporarily overtaking Venezuela as the country with the world’s highest bond risk, the CMA Group unit said in a report published today.
“The major widening action in European sovereign credits indicates that the eurozone remains the hub and focus of the global debt crisis,” according to CMA’s Global Sovereign Credit Risk report. “None of the Western European sovereign credit- default swaps tightened.”
European Central Bank President Jean-Claude Trichet this week urged governments to trim deficits to improve consumer and investor confidence. The European Union in May hammered out a €750 billion ($939 billion) rescue package to help ease a regional debt crisis sparked by Greece’s budget deficit.
Protection costs for the quarter’s worst European performers more than doubled, with swaps on Greece soaring 190 per cent, Belgium climbing 168 per cent, Spain 129 per cent and Portugal 127 per cent, the report said.
Credit-default swaps are contracts for protecting bonds against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of credit quality and a drop shows improvement.
Swaps on South Korea climbed 65 per cent as tensions with neighbouring North Korea mounted when a warship sank, making it Asia’s worst-performing sovereign. With a 2 per cent increase, Vietnam was Asia’s best performer. The cost of insuring Australia’s debt increased 52 per cent after a new mining tax was levied on resource companies.
US was one of eight nations whose default swaps showed improvement in the quarter, falling 2.4 per cent, according to CMA. UK credit default swaps were little changed as the country’s new coalition government announced a reduction in the “scale of state spending and tax increases to help bring public debt under control,” the report said.