Credit Suisse Declares the U.S. a Riskier Investment Than Indonesia

[kpete]

http://ftalphaville.ft.com/blog/2010/02/10/146606/handy-sovereign-risk-table/

Credit Suisse Declares the U.S. a Riskier Investment Than Indonesia
Tweet Digg Reddit Facebook StumbleUpon Yahoo! Buzz By Megan Carpentier 2/12/10 1:47 PM

Amid fears that Switzerland might come to an agreement with the United States on banking privacy and tax evasion disclosures, Credit Suisse issued a report identifying those countries it determined to have the highest risks of default on their sovereign debts. Number 16 on the list was the United States, based primarily on its 2009 budget deficits and government debt.

Countries ranked less likely to default include corruptocracy Kazakhstan, less-than-reform-minded Indonesia, the debt-ridden Philippines and violence-ridden Colombia. By comparison, U.S. Treasuries prices are up today despite a new issuance this week.

http://washingtonindependent.com/76529/credit-suisse-declares-the-u-s-a-riskier-investment-than-indonesia

[DJ13]

1. Payback for the IRS investigation into their tax shelters?

[RUMMYisFROSTED]

2. And Poland.

[leveymg]

3. Yes, but note the low CDS spread for the US. Nobody's betting on default.

CDS spread is like odds on a horse. A spread of 30 basis points means that the odds are long that default will actually occur, so nobody's offering much of a risk premium. Contrast that with Iceland (638) that actually did default recently on its sovereign debt.

Here's how Wiki explains it:

The "spread" of a CDS is the annual amount the protection buyer must pay the protection seller over the length of the contract, expressed as a percentage of the notional amount. For example, if the CDS spread of Risky Corp is 50 basis points, or 0.5% (1 basis point = 0.01%), then an investor buying $10 million worth of protection from AAA-Bank must pay the bank $50,000 per year. These payments continue until either the CDS contract expires or Risky Corp defaults.