Читать книгу The Foreign Exchange Matrix - Barbara Rockefeller - Страница 42

In determining the market’s appetite for risk, traders also keep a close eye on the spread between US corporate high-yield debt and the equivalent US investment-grade bond (US Treasuries). If the spread between the two instruments widens dramatically because the corporates need to offer a higher yield to woo investors, this is a red flag for risk, whether for the market as a whole, or that particular company. Whether a triple-A corporate or a junk name, savvy FX players try to watch how these spreads are trading.

A company or country’s credit default swap (CDS) is also monitored by traders. A Federal Reserve research paper updated in February 2011 ^[8] explains the fundamentals of a credit default swap agreement:

“Under a CDS contract, the protection seller promises to buy the reference bond at its par value when a predefined default event occurs. In return, the protection buyer makes periodic payments to the seller until the maturity date of the contract or until a credit event occurs. This periodic payment, which is usually expressed as a percentage (in basis points) of the bonds’ notional value, is called the CDS spread. By definition, credit spread provides a pure measure of the default risk of the reference entity. We use CDS spreads as a direct measure of credit spreads. Compared to corporate bond yield spreads, CDS spreads are not subject to the specification of benchmark risk-free yield curve and less contaminated by non-default risk components.”

Country risk can be gauged by watching CDS spreads also. Indeed, throughout the euro zone debt crisis, traders kept a close eye on peripheral spread widening, in both the CDS market and in spreads over German Bunds. Greek five-year CDS spreads (Greek CDS over the equivalent of German Bund CDS) widened to a record 1,385 basis points in April 2011, only to push well over 1,600 basis points in June.

What exactly does this insurance policy mean? It would cost $1.6 million dollars annually to insure $10 million in Greek debt for five years. Greek five-year spreads over Bunds, which already stood at a stretched 950 basis points in early January 2011, widened to a record 1,509 basis points in early August.

It should be noted that, despite Greek CDS spreads hitting record highs and two-year Greek yields reaching nearly 43% in August, the euro exchange rate maintained roughly a $1.40 to $1.45 range, far closer to the 2011 highs near $1.4850-$1.4940 seen in May than the 2011 lows around $1.2875 seen in January. The widening of Greek CDS, while a clear euro negative, was not enough to offset the combination of uncertainty about the US dollar and reserve diversification by world central banks (a topic covered in more detail in Chapters 10 and 11).