Today's Major Market Move: French 5 Year Credit Default Swaps Decline 21% in 2012

The best performing 5 Year sovereign credit default swaps in 2012 belong to France, which have declined 21% for the year. This makes it the best performing 5 year swap of the ones we track. Here's the top 10:

Click here to go to the live table.

Sovereign debt default risk has in fact come down across the board with only 2 of the 26 five year CDS that we track going up in price. The European situation has stabilized with several recent government bond auctions going better than expected, due in no small part to involvement by the ECB. Here's some commentary from Reuters on a recently completed Spanish Bond auction:

Borrowing costs fell sharply from the last time the same maturities were sold in mid-December - a day before the European Central Bank's pushed almost half a trillion euros in three-year loans into the bloc's banks.

At just 1.285 percent and 1.847 percent, respectively, the yields on the three-month paper was the lowest since last February and on the 6-month yield the lowest since June.

Spain has moved away from the sharp end of the euro zone crisis in recent weeks, its debt-servicing programme supported by the flood of cheap ECB money along with the bank's regular purchases of Spanish bonds on the market.

With the ECB still adding liquidity into the system, two key items to pay attention to are the EURUSD cross and the price of Brent. Here's a chart that shows the two going back to the beginning of 2011:

Click here to go to the live chart.

Brent is priced in dollars so to give one an idea of what is happening with the price of fuel in Europe, one can look at the separation between the two charts. The higher the red line and the lower the blue line, the worse it is for petroleum based energy consumers in Europe. So if one takes the current percentage change in Brent (.13)  and the negative change in the EURUSD (.02), adds one to each and multiplies (1.13 * 1.02) = 1.15) one gets a rough estimate of the net effect of declining value of the currency along with rising oil prices: 15%.

This discussion allows us to segue into an announcement. Over the next week or so we will add the tracking of gasoline prices in USD for individual countries. The price at the pump of course is an amalgamation of a variety of costs: crude oil, taxes, transport, refining, etc. But we think this metric provides important insight into what is happening at the level of the individual consumer and rising fuel prices is perhaps the most insidious effect of currency devaluation.