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75%: The probability of a Greek default by 2015, according to the credit markets.
Financial markets around the world are gyrating as investors try to assess the likelihood and potential repercussions of a Greek default. But if you believe the signals coming from one corner of the credit markets, that default is all but a matter of time.
The 750-billion-euro rescue package put together by euro-zone governments and the IMF is more than adequate to cover the immediate needs of Greece, Portugal, Spain and other fiscally challenged European governments. All together, those governments need no more than about 288 billion euros through the end of this year even if investors refused to lend them another cent.
Beyond that, though, the situation gets dicier — a reality reflected in the market for sovereign credit-default swaps, where players bet on the likelihood of defaults by buying and selling insurance contracts that pay off if a government reneges or restructures its debt.
As of Friday, indicative prices in the credit-default-swap market suggested it would cost about $830,000 a year to insure $10 million in Greek debt through July 2011. If the loss in the event of a default would be about $3 million — i.e., bondholders would get back 70% of their money in a debt restructuring –– that means the market sees a 26% chance that Greece will renege by July of next year. By July 2015, that market-implied default probability rises to about 75%, compared to about 4% for cash-rich Norway.
To be sure, credit-default swaps are far from a perfect indicator. For one, very little trading occurs in the market, allowing a few players to have a big impact on prices. Also, there are many so-called “technical” factors, such as banks' hedging needs, that can push prices to levels that do not reflect actual default risk.
Still, credit-default swaps have done a pretty good job of predicting trouble in the past. They started flashing warning signs, for example, even as the stock market kept rising in early 2007. This time around, they could again be telling us something we need to know.
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The only magic Tim works is his Dasappearing American Tax Receipts schtick.
Didn’t the guy WSW say about six months ago he wasn’t ever going to talk about horses anymore. BORING! Nothing to do with the subject, just personal make believe baloney. Seems like he’s 6 years old.
Ex-Apostle of the $USD
Hopefully, Tim works his magic upon the Chinese in terms of the importance of domestic consumption. If so, that will be an accomplishment!
Unfortunately, my horse “ran out” of the money today. He was “outclassed”. Thank you!
La-di-da-di-da…..Let’s applaud the rescuscitation of WSW after a 150 point S&P rout. What’s important is the rise or fall of his equity positions and most of all continued blind adulation of Tim & Ben - not world events. Putting some shekels on any one of his horses is by far a better bet any day than backing Tim & Ben. My congrats to his his real horses and curses upon those other 2 Horsemen of the Apacolypse.
It seems that fundamental and or technical analysis takes a back seat to geo-political events. So go figure.
At least it is somewhat more predictable selecting races for your steeds to enter. I had 2 seconds yesterday and made a few shekels. Today, we have an allowance race. My entry is long!
Real Time Economics offers exclusive news, analysis and commentary on the economy, Federal Reserve policy and economics. The Wall Street Journal’s Phil Izzo and Sudeep Reddy are the lead writers, with contributions from other Journal reporters and editors. Send news items, comments and questions to realtimeeconomics@wsj.com.
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