Equity market jitters over the future of the European Union are not universally shared by credit investors with the cost of insuring against a bond default by a number of member states remaining on a downtrend. Fears that Greek anti-austerity political party will win next week's election in that country has been blamed as one of the reasons behind the recent share market sell-off. Any breakdown in the 28-member bloc will be just as devastating, if not more, for bond investors as witnessed three years ago when panic over a possible breakup of the EU sent credit markets into a meltdown. But bond investors are strangely calm this time as the chart shows. The probability of a bond default in Germany, Netherlands and Denmark have fallen by over 20% each over the past month. Sure, Greek 10-year bonds have spiked 135 basis points, but sovereign bonds of other member states (even the weaker ones) remain very low. This implies that credit investors believe any fallout will be contained in Greece. Equity & credit investors can't both be right. Click for more (VIEW LINK)
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