The back page of section C of today’s WSJ talked about the recent rise in the CDS of sovereign Japan and its recent rise. As of today, 5 year CDS for Japan is at 72 bps (costs $72k per $10mm of notional value), just a few bps off the highest level since April. UK 5 yr CDS has also ticked up to 56 bps, near a two month high. US CDS is at 25 bps, also a two month high. Germany has been more stable at 21 bps. To provide a frame of reference, McDonalds 5 yr CDS is at 30 bps, IBM is at 32 bps, PG is at 48 bps, C is at 198 bps, BAC is at 118 bps, Ford is at 825 bps, the State of CA is at 177 bps, the State of NY is at 85 bps and Massachusetts is at 59 bps. With respect to sovereign CDS, the US will never default as we’ll print all the money needed to pay back our debts and other G10 countries are unlikely too but as Japan’s CDS reflects, the market can vote everyday on where potentially higher funding costs will be.
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