Given the amount of media hand-wringing about global short-sellers moving on Australian banks last week, I thought it might be useful to check on the price for insuring their debt. There is a minor new uptrend over the past month…CDS speads for the majors have, on average risen 4 bps from 106 to 110 since May 10. Keeping this in perspective, Spanish CDS is at 254, Ireland 675, Greece 1441 and Italy a very modest 166. Of their banking peers globally Citibank is at 127, Bank of America 144 but Wells Fargo (which is probably the closest America has to an Australian bank) is just 84.
Neither the Moody’s downgrade, which triggered the sell-off, nor the ructions in Europe have triggered any major re-pricing of insurance for Australian bank debt.
As you can see, this lack of movement is in stark contrast to the first round of the European crisis in May 2010, not to mention recent rumblings form the banks themselves about potential fallout from Europe. Either the Moody’s downgrade is being seized upon by opportunistic shorts in the equity market, the European crisis is being underpriced in Australian CDS or the banks are engaged in some preparatory jawboning.