Sovereign CDSs cause systemic concern

Increased protection selling on sovereigns raises fears about systemic risk

europe

Escalating spreads on European sovereigns have encouraged market participants to write credit default swap (CDS) protection in return for juicy premiums. However, the trade is worrying some onlookers, who believe it could create a source of systemic risk.

By market close on May 25, five-year CDS spreads on Portugal, Ireland, Italy, Greece and Spain – the so-called Piigs countries – had all risen significantly. Portugal was at 334.1 basis points, Ireland at 254.9bp, Italy at 207.4bp, Greece at

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