Thursday, March 12, 2009

Sovereign Risk Update

I will keep harping on this theme until such time as harping is no longer necessary. Equity market rippage has resulted in essentially zero change in overall country risk profiles (and deteriorating risk in Japanese risk). There is a massive disconnect between equities and credit, especially sovereign credit which is becoming a defacto proxy for corporate risk via extended short-term guarantee programs and assumed liabilities. Not much needs to be said here: no equity market rally is indicative of increased risk tolerance until the lines below move dramatically tighter.

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Anonymous said...

Please keep harping on it. The Sovereign Risk Update is my favorite part of the show!

Anonymous said...

theoretically you are right, but this is like other cds markets where it is a one sided. i dont think its indicative of actual credit risk, its just a very, very cheap put option. people have very slowly learned that being short puts is a bad idea.