I have been using a trial of a nifty credit service called Advantage Data to look at credit spreads and risks. Here is a look at the last 3 months of the CDS prices for US and UK 5 years.
Looking back over the last 3 months, it looks like things are getting better. This chart shows a CDS bid price in bps, referencing the likelihood of default of the UK and US government debt over the next 5 years.
Below is the chart with a time horizon going back a year or so ago. The message is that the credit crisis while apparently getting better is still posing extreme systemic risk according to CDS spreads. I posted this data help people think about what is going on in the credit world's view of things.
The equity markets are important to peoples perception of wealth and confidence etc. in the near term. It is the perception of risk and liquidity in conjunction with demand that actually determines how we get through this. The current plans have been greeted optimistically, but are not priced in as a full resolution to these national crises. Let hope spreads keep tightening. The Q1 US GDP could be an eye opener.
As indicators of perceived risk, the equity markets don't tell a person a lot. The CDS spreads offer a lot more information and are exhibiting strong signals that appear directionally promising, but still chronically high. Tarp V 3.5 anyone?
Here is a the same information for the G-10 from Bloomberg. The fat lady isn't singing quite yet.
