By Mark Brown
Credit default swaps written on peripheral euro-zone sovereign borrowers were mostly wider early Monday, although the cost of insuring Greek sovereign debt fell after the ruling Socialists won local elections in a majority of Greece’s 13 electoral regions.
Greece’s five-year sovereign CDS were five basis points tighter at 855 to 865 basis points, according to one trading desk. But Ireland’s five-year sovereign CDS widened 17.5 basis points to 605 to 615 basis points, Portugal was 9.5 basis points wider at 457 to 467 basis points, and Spain was 7.5 basis points wider at 257 to 262 basis points.
The moves in CDS mirrored those in the cash market, where the yield spread between Greek 10-year bonds and the benchmark German bund fell, but yield spreads between Irish, Portuguese and Spanish 10-year bonds and bunds all rose.
Peripheral euro-zone sovereign bond markets were volatile last week, on continuing worries about the ability of some governments to pass deficit-cutting budgets, and on the impact that these will have on their economies and on sovereign finances. CDS are derivatives that function like a default insurance contract for debt. If a borrower defaults, the protection seller compensates the buyer. Buyers may be protecting investments, or making bearish bets against borrowers.
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