While European credit default swap spreads have contracted substantially post the announcement of a super bailout fund for troubled Eurozone nations, they are still pretty ugly for Greece and Portugal.
They’re still pricing-in more risk of default than before April 12th:
Credit swaps on Greece tumbled 329.5 basis points to 586, the biggest decline since March 2005, according to CMA. The swaps are still up from 364 on April 12.
Contracts on Portugal, which were 152 basis points four weeks ago, dropped 170 to 255. Spain, which declined 65.5 to 173 yesterday, is 48 basis points higher than April 12.
Greece may have its credit rating lowered to junk within the next month, Moody’s Investors Service said yesterday, citing the country’s “dismal” economic prospects.
Thus markets aren’t quite buying the latest bailout, since they price-in a higher chance of default for key struggling nations than just a month ago. Moody’s isn’t buying the bailout either. Which is odd, because theoretically Greece has been just provided a life-line that should at the very least allow it to meet its current outstanding debt obligations. It’s as if markets don’t believe the European bailout fund will actually happen to the full extent as it’s described to.