CDS on the Debt of Australian Banks on the Move

Below you find a brief update of the most important CDS charts we usually keep an eye on.  We decided to increase the frequency of these chart updates to give readers the opportunity to stay abreast of what is happening in these markets now that they have broken top new highs and are consequently at a critical juncture. It doesn't happen all that often that most of Europe sees its credit risk priced at banana republic levels.


A comprehensive commentary will come out again soon. In the meantime, we want to point out that there have been two recent movers that really caught our eye: CDS on Japanese JGB's and CDS on the senior debt of Australia's 'Big Four' banks, which have shot up in the new year like a bat out of hell.

We strongly recommend watching for signs of a prospective  funding problem for Australia's banks.

They are exposed to one of the most egregious housing bubbles ever  – and they receive most of their short term funding (to the tune of nearly $400m.) from overseas sources. This is a potentially highly explosive situation.


– prices in basis points, color-coded:


5 year CDS spreads on Portugal, Italy, Greece and Spain – once again, all except Italy's move to a new crisis high – click for higher resolution.



5 year CDS spreads on Ireland's sovereign debt, Bank of Ireland's senior debt, France and Japanese sovereign debt. All at either new record highs or new highs for the move. A big move recently in CDS on Japanese debt – the absolute level at about 79 basis points is still fairly low, but high for a major industrialized nation – and they have nearly doubled from this year's lows – click for higher resolution.



5 year CDS on Romania, Hungary, Austria and Belgium – with the exception of Romania, yet another set of new highs – click for higher resolution.



The Markit SovX index of CDS on 19 Western European sovereigns – yet another new all time high – click for higher resolution.



5 year CDS on Australia's 'Big Four' banks. A rocket ride higher so far in the new year. This needs to be watched very carefully – we regard credit risk pricing on Australia's banks as a 'canary in the coal mine'. Spreads have yet to best the highs seen at various junctures in 2010, but it seems that this recent move from a higher low could be 'it' – click for higher resolution.



The SPX, T.R.'s proprietary VIX-based volatility indicator and the gold-silver and gold-commodities ratios. No sell signal just yet, but getting close – click for higher resolution.


Charts by:Bloomberg




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Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


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