Saturday, March 31, 2012

Today's Major Market Move: Sweden's 5 Year Credit Default Swaps Decline 45% Year to Date

Perhaps their economy was steeled by the debt crisis they experienced back in the 1990s, since Sweden now has arguably one of the healthiest economies in Europe and even the world. In order to back this statement up we'll take a look at several metrics, starting with credit default swaps. Swedish 5 year credit default swaps, after dropping 45% so far in 2012, are the second lowest priced (of the ones we track) after the U.S. For those of you not familiar with how CDS work, a lower price means the market places a lower probability of default on that country's bonds. Here's the top ten 5 year CDS ranked in order of lowest current price:

Click here to go to the live table.
In terms of GDP growth, Sweden is expected to have the highest GDP growth in the European region for the time period 2007-2015 (data and estimates courtesy of the IMF):

Click here to go to the live chart.
The Krona, when looking back over the past 15 months, has been relatively stable with the USDSEK cross trading in a range between 6 and 7. The currency is currently stronger by a modest 2.2% since the beginning of 2011.

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In terms of equity market performance, the benchmark OMX Stockholm Benchmark Index is up 6% since 2007. This places it 28th out of the 86 benchmark equity indexes that we track and ahead of the equity indexes of  the major industrialized countries (excluding the BRICs) and all other European countries. The following images shows positions 22 through 32:

Click here to go to the live table.
Is there a lesson to be learned from the Swedish approach to handling its crisis? This has been and continues to be debated. One major difference between the Swedish incident and the current crisis is that today's downturn was global in scope whereas Sweden went through theirs in relative isolation. The tactic of currency devaluation to reduce imports and boost exports is much more effective when other countries aren't attempting to do the same thing. It is worth pointing out that Sweden did not accept any outside bailout money nor did it receive any assistance from the IMF.

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