Fitch Solutions says that developed market sovereigns in the Eurozone have driven the rebound in global CDS liquidity after the seasonal lull. Leading the surge are France, Spain and Austria, which have moved up 14, 10 and 10 regional percentile rankings respectively over the past month.
“In contrast to emerging market sovereigns, which saw the biggest drop off in liquidity over the holiday period, CDS referencing developed market sovereigns in Europe have continued to get more liquid on average,” said Diana Allmendinger, director, Fitch Solutions, New York. “Western European sovereigns now make up six of the top ten most liquid global sovereigns compared to just three last November,” Allmendinger added.
Today’s commentary also highlights that sovereign liquidity trends are being mirrored in spread movements, with Fitch Solutions’ Eurozone CDS index pricing 61 basis points wide of its Emerging Markets Sovereign index, despite excluding Greece.
The full Fitch Solutions’ Global CDS liquidity scores commentary, which covers the top five most liquid CDS corporate names in Europe, North America and Asia, as well as the top five most liquid global sovereigns.
In general, the liquidity of a credit derivative asset increases when it is showing signs of financial stress in combination with a significant amount of debt outstanding and/or changes in its capital structure, including new issuance. The liquidity scores of assets have historically traded between 4 at the most liquid end, through to 29 at the least liquid end. Entities also tend to be more liquid when there is agreement about present value but disagreement about future value due to heightened uncertainty surrounding the entity.
Fitch Solutions, a division of the Fitch Group, focuses on the development of fixed-income products and services, bringing to market a wide range of data, analytical tools and related services. The division is also the distribution channel for Fitch Ratings content.
The Fitch Group also includes Fitch Ratings and is a majority-owned subsidiary of Fimalac, S.A
