What's clear from these charts is the extent of inter-links between banks and sovereign credit default swaps. In Spain at least three core banks - La Caixa, BBVA and Banco Santander act as relative diversifiers away from the sovereign risk since late October. In Ireland - all of the banks carry higher risk than sovereign. Another interesting feature is a significant counter-move in the Anglo CDS since late September. This, undoubtedly underpinned by the large-scale bonds redemption undertaken by Anglo at the end of September. Thirdly, an interesting feature of the Irish data is that CDS contracts on Anglo, IL&P and AIB are now trading at virtually identical implied probability of default.Lastly, Irish sovereign debt is now trading at probability of default higher than that of the Spanish banks!
Very interesting analysis.
ReplyDeleteOf course, our banking sector debts are effectively now national debt.
Funny how two countries banking systems both exposed to the property boom have fared.
Good stuff constantin.