CDS spreads continue to rise in troubled Middle East

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Author: Michael Watt

Source: Risk magazine | 21 Feb 2011

As the focus of the political turmoil rocking the Middle East and north Africa shifts towards Libya, risk perceptions of other sovereigns affected by the unrest continue to rise.

In Tunisia, credit default swap (CDS) spreads widened from 177 basis points at end of trading yesterday to 190bp by 1.00pm today, according to financial information provider Markit. The interim Tunisian government has called for the extradition of ousted president Zine El-Abidine Ben Ali, who fled to Saudi Arabia after he was toppled by popular protests last month.

Egyptian spreads have moved from 352bp to 361bp, with demonstrators in Cairo continuing to put pressure on the interim military council to hasten the process of democratisation.   

Mass demonstrations have also broken out in a number of cities in Morocco, with unconfirmed reports of mass arrests and dozens of casualties from clashes between government forces and protestors. Moroccan CDS spreads have increased from 178bp to 188bp. In Bahrain, spreads rose slightly from 290bp to 300bp as the government backed away from its harsh suppression of public dissent after troops responded to mass protests with live gunfire last week.  

Elsewhere in the region, Israeli spreads widened from 152bp to 158bp and spreads on Saudi Arabia increased from 139bp to 144bp.

Meanwhile, many peripheral eurozone sovereigns experienced a slight increase in risk perception – Portuguese spreads widened from 458bp to 465bp, Italian spreads rose from 174bp to 175bp, while those of Spain moved from 247bp to 252bp. Ireland bucked this peripheral trend, as spreads there fell from 589bp to 583bp.

Among the core eurozone sovereigns, spreads in Belgium increased from 166bp to 170bp, and in Germany they remained stable at 53bp.

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