As we are on the cusp of rapping (pun intended) up 2010, one of the main issues that impacted markets that of sovereign European debt problems, remains in full force. After seeing bailouts for Greece and Ireland and now the implementation of a permanent bailout facility we’ve learned that outside of temporarily saving senior bank bondholders, the actions have done nothing to calm investor concerns as funding costs are still very elevated. While markets are thin this week and let’s not read too much into this just yet, and I emphasize yet, French 5 yr CDS today is rising to a record high at 109 bps. They are now above Panama and are approaching Columbia. As Germany and France take on more financial responsibility for their friends, their own respective financials will be more heavily scrutinized. Greek CDS is back above 1000, Ireland’s 10 yr bond yield is back above 9% and nearing a 17 yr high and Moody’s put Portugal on review for a downgrade by 1-2 notches.
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