Prevailing CDS spreads in Europe are sending a very scary signal, say Deutsche Bank’s Jim Reid and Nick Burns. This is according to a report on Bloomberg.
And there’s one thing that’s keeping everything together: dovish monetary policy.
“If these implied defaults come vaguely close to being realised then the next five years of corporate and financial defaults could easily be worse than the last five relatively calm years,” the analysts in London said. “Much may eventually depend on how much money-printing can be tolerated as we are very close to being maxed out fiscally.”
“The LTROs gave us some respite but they don’t appear to have taken the problem away,” Burns said in a phone interview. “At the moment there are no more LTROs on the table.”