On Sovereign CDS and Liquidity (from FitchResearch)

Is Dubai and emerging markets the problem in CDS or is it the developed world?

Fitch Solutions-London/New York/Singapore-03 December 2009: Fitch Solutions, a division of the Fitch Group, says the global CDS market has now become more uncertain about the outlook for developed economies than for emerging economies, with average liquidity on developed economies' sovereign CDS exceeding that for emerging economies since 23rd November.

This trend has held despite news of the debt restructuring of Dubai World, announced by the Dubai Department of Finance on 25 November.

“Whilst the top ten most liquid sovereigns are all still emerging economies, the liquidity index for developed economies has now crossed over and become more liquid than the index for emerging economies,” said Thomas Aubrey, Managing Director, Fitch Solutions, London.

“The continued increase in overall CDS liquidity for developed economies is driven by market uncertainty about the strength of economic recovery and the sustainability of higher levels of debt to GDP in combination with lower tax revenues. Since the start of this year, Austria has seen the biggest rise in CDS liquidity,” added Aubrey.

via FitchResearch.

Turns out it’s rubbish monetary & fiscal policy that are driving the uncertainty. With Dubai not stepping in to guarantee Dubai World and Nakheel debt, it’s probably the best thing to do, as painful as it will be.

Increasing liquidity in this space reflects heightened credit risk. Remember that…


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