Monday, November 21, 2011

Today's Major Market Move: Argentinian CDS Rise 8.3% on Monday

There was a lot of activity in various asset classes all around the world today thanks to the combination of the Super Committee deadlock in the U.S. along with the on going sovereign debt crisis in Europe. One of the larger price moves was actually neither in Europe nor the U.S. but down in South America where Argentinian 5 year CDS gained 8.3%. Here's a list of the biggest price gainers amongst soveriegn CDS on Monday:

Click here to go to the live table.

As you can see Argentina wasn't even the hardest hit; that honor belongs to Russia. We're focusing on Argentina however since Argentina has a much higher default risk in absolute terms. In fact, with today's move, Argentina has passed Portugal and is now only behind Greece in terms of single country sovereign debt default risk. Here's a comparison of performance of the top 5 sovereign credit default swaps (in terms of price) over the last 25 days:

Click here to go to the live chart.

(The Greek line in the above chart is a little out of whack because Greek CDS stopped trading while the dust settled on the recent default on sovereign debt in Greece.)

The only explanation I can come up with for the elevated status of Argentinian CDS is a recent history of debt restructuring. According to the IMF, their debt to GDP is only 49.10% which would make Argentina a paragon of fiscal prudence compared to many other countries (cough, Japan, cough, Italy).

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