Sovereign Risk: Is the Global Economy Facing Fiscal Austerity or Fiscal Crisis?
Advisories
March 09, 2010 Posted by: Melina Hadiwono
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March 08, 2010 Posted by: Melina Hadiwono2010 may prove to be a turbulent year for sovereign debt given the uncertainties surrounding the pace and intensity of fiscal and monetary exit strategies. The next two years will be a critical test for heavily indebted countries to start implementing a credible plan. If the market loses confidence in this plan, we expect further challenges to the recovery and new challenges to political and social cohesion.
As the sovereign story has gathered steam over the last few weeks and investors have become concerned about the possible systematic implications of fiscal problems in Europe, bank CDS began to move in tandem with sovereign CDS. The correlation between the two clearly has spiked and remains elevated. For the foreseeable future, we expect that sovereign risk will remain a key source of volatility for the global banking sector.
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2010 may prove to be a turbulent year for sovereign debt given the uncertainties surrounding the pace and intensity of fiscal and monetary exit strategies. The next two years will be a critical test for heavily indebted countries to start implementing a credible plan. If the market loses confidence in this plan, we expect further challenges to the recovery and new challenges to political and social cohesion.
As the sovereign story has gathered steam over the last few weeks and investors have become concerned about the possible systematic implications of fiscal problems in Europe, bank CDS began to move in tandem with sovereign CDS. The correlation between the two clearly has spiked and remains elevated. For the foreseeable future, we expect that sovereign risk will remain a key source of volatility for the global banking sector.
Download the article (PDF)