European Default Swaps Index Converges With Emerging Markets: Euro Credit

The cost of insuring government debt against default Western Europe is converging with that of emerging markets.

The Markit iTraxx Index SovX Western European credit default swaps, in 15 countries, including Germany and Ireland this month rose to 18.25 points based on a similar indicator for the risk of emerging markets, the nearest history, according to CMA. The spread was 160 basis points as recently as February.

"Emerging markets have better fundamentals and growth prospects," said Lucas Spajic, the London-based chief European management of the loan portfolio at Pacific Investment Management Co., which runs the world's biggest bond fund. "I am a buyer of the idea."

Rated garbage Turkey, Kazakhstan and Ukraine moves through the crisis better than the developed European countries because they have less debt and avoid falling real estate prices that affected the west. The cost of bond insurance for the nations from Greece to France increased by 14 percent this month as Ireland faced an international bailout to prevent contagion in the euro region.

s Markit Group Ltd. SovX CEEMEA iTraxx default swap index of emerging markets fell 6.5 percent to 203 basis points since it started trading on January 20, CMA prices show. That means it costs $ 203,000 a year to secure $ 10 million five-year bonds. The Markit iTraxx Index SovX Western Europe doubled to 166 basis points over the same period.

Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent of a country or company fail to adhere to its debt agreements.

"Trade in parity"

"There's a good chance that indices trade at par," said Greg Venizelos, a credit strategist based in London at BNP Paribas SA, Europe's largest bank by assets. "Most CEEMEA countries, including Turkey and Russia, are better than Spain or Ireland, or Greece or Portugal."

developing nations of Europe are forecast by the International Monetary Fund to grow 3.7 percent this year and 3.1 percent in 2011, compared with 1.7 percent and 1.6 percent for the economies most advanced in the region.

A reallocation of a percentage point of the investments in stocks and bonds of real money investors such as insurance called and pension funds of the G-4 countries to developing countries would be equal to an exodus of $ 485 million According to the IMF.

Emerging market stocks

The MSCI Emerging Markets Index of stocks rose by 13 percent this year, compared with 7 percent increase in Europe's Dow Jones Stoxx 600 and up 8 percent of the 500 Standard & Poor's in the U.S. .

The comparison of emerging markets with developed European countries is "unfair," said Gabriel stars, an economist at brokerage Exotix Holdings Ltd. in London. "Unfair to emerging countries."

Government bonds also show how investors perceive the risk of Western Europe and emerging markets have come together from the European Union led a bailout of Greece in May.

Turkey has 750 million euros (1.03 billion U.S. dollars) of 5 percent bonds in 2016 Ba2 rated at a "junk" by Moody's Investors Service and an equivalent BB by Standard & Poor's. The notes yield 3.76 percent, about half of Ireland's 4.6 percent 2016 bonds, which are classified as many as nine overpasses, and near where the securities were trading as recently as March.

Turkey growth

Turkey's economy grew at an annual rate of 10.3 percent in the second quarter, driven by a consumption boom helped the historically low interest rates. The nation matching China with the fastest growth among the Group of 20 major economies only two years after his departure from a funding program of the IMF itself.

Ireland became the second euro-region country to request international assistance when Finance Minister Brian Lenihan said yesterday that the country will seek to at least 100 million euros from the European Union and the IMF. Swaps credit-default linked to the Irish government bonds fell 28.5 basis points today to 478.5, CMA prices show.

Ghana $ 750 million 8.5 percent notes due 2017, rated B by S & P, the yield of 5.93 percent, below the rate of 6.3 percent in Portugal 6100 million dollars, 4.35 percent bonds, rated A-. 300 million euros of Albania's 7.5 percent 2015 bond, rated B, the yield of about 8.4 percent, about debt in Ireland.

"At that time, an investor might decide that it may be better to buy bonds Polish Portuguese debt," said Christian Keller, an analyst at Barclays Capital in London.

Five-year bonds issued by Greece, which has the highest speculative grade rating in the S & P, the yield of 12.3 percent, nearly 3 percentage points from Albania or Jamaica, which are classified by least three steps below. The $ 500 million in bonds of 7.125 percent, 2,016 of Pakistan's nuclear weapons, fighting an Islamic insurgency and grade B, 8.67 percent yield.

Sharing the pain

Swaps credit-default in western European government debt and bond yields soared after the German chancellor, Angela Merkel, called Oct. 29 to bondholders to take over rescue cost nations have to restructure its debt. She repeated the comments in Seoul on November 11 in the G-20, sending benchmark yields Ireland's benchmark 10-year to a record 8.9 percent.

"This has been so incredibly poorly managed that no evidence," said Gary Jenkins, head of fixed income developments Securities Ltd. in London. "Reyes depend on the bond market, so says the bondholders are going to take some pain is self-fulfilling. It was somewhat irresponsible, ridiculous to do."