Continued protests keep Egyptian CDS spreads volatile

Eurozone risk perceptions fall while Egypt remains on a knife edge

The cost of insuring against an Egyptian default remained volatile today, as the tense stand-off between protesters and government supporters continued across the country. Spreads on Egyptian credit default swaps (CDS) narrowed from 389 basis points at close of play yesterday to 377bp by 1.00pm UK time today, according to financial data provider Markit. Although the violence that has raged between the two groups over the past two days seems to have abated, pro-democracy forces remain entrenched in central Cairo, and Western leaders have put pressure on president Hosni Mubarak to begin the transition to a democratic government.

Elsewhere in north Africa, CDS spreads on Tunisia fell from 210bp to 199bp – since mass protests forced the hasty departure of president Zine el-Abidine Ben Ali on January 14, opposition groups, military leaders and politicians from the old regime have struggled to agree on the composition and direction of a new government.

Meanwhile, risk perceptions resumed their decline in peripheral and core eurozone states, after rises across the board yesterday. In Ireland, CDS spreads narrowed from 572bp to 549bp, while in Greece they moved from 850bp to 785bp. Spreads also declined in Portugal, moving from 403bp to 394bp. Spanish CDS spreads fell slightly from 226bp to 222bp, while Italy also experienced a small narrowing, from 166bp to 163bp.

This downward trend was also seen in core eurozone states – in Belgium, spreads fell from 156bp to 153bp, and in Germany they narrowed from 55bp to 52bp, the lowest fix since December 9, 2010.