Self-referencing CDS risk?

Ballooning credit default swap spreads on European sovereigns have encouraged some market participants to sell credit protection on their own country. But how much is this protection really worth, and could this selling contribute to systemic risk? Mark Pengelly investigates

Sovereigns have replaced banks at the epicentre of the financial crisis. Anxiety about the level of debt racked up by some eurozone sovereigns before and during the crisis has caused a huge rise in the cost of funding for some countries – and led to fears of contagion throughout the region. A €750 billion emergency loan package agreed by the European Union and International Monetary Fund on May 9 initially seemed to restore confidence, but there are continued concerns about the health of