Sovereign CDS Spreads Widening in Europe

European sovereign 5-year CDS spreads are blowing out this morning, with Spain at 285bps (+58.5bps), Portugal at 495bps (+78bps), and Ireland 605bps (+65bps). As of now, concerns seem contained to the Euro zone, but I think it is only a matter of time before we start seeing the residual effects spill over into the United States. US treasuries in the belly of the curve (2-5 years) remain well bid, as investors try and front run the Fed’s $600 billion quantitative easing program, but the yields on the long-end of the curve (particularly 30-year treasuries, where the Fed will only do marginal buying) have blown out over the last few days. Yesterday’s weak $16 billion auction of 30-year treasuries could serve as the canary in the coal mine for investors who have been piling into fixed income over the last 18 months.

Spain


Portugal


Ireland

Here are a few recent articles from the WSJ that address mounting concerns in the Euro zone.

Spain’s Bank Mergers Suddenly Drying Up
QE2 Off its Course: Yields Are Going Up
Ireland’s Next Blow Could be Home Loans