Tracking Sovereign Risk of the G7 Nations
Tyler Durden submits:
Zero Hedge has written repeatedly in the past about the importance of keeping track of sovereign CDS levels as more and more corporate risk (especially in financials) is being offloaded to the balance sheet of respective sovereign balance sheets. And while pundits may claim these indications are useless as there is no way, no how, that the U.S. may ever default on its debt (empirically incorrect), they provide an indication of the commingling of risk, and every risk manager should take them into consideration when making investment decisions.
Among the prevailing market theories is that the rise in G7 CDS levels is among the main causes for the subdued levels of the VIX which, since November last year, has stopped exhibiting parabolic behavior even on dramatically down days (unable to pierce 60 in the early March market plunge, after breaching 80 when the market hit the higher lows of November 2008). A comparable theory can be applied to credit index levels such as IG11 which did not retrace its November wides by a significant margin.
