Fitch Solutions: CDS Liquidity Declines for Developed Market Sovereigns

NEW YORK & LONDON & SINGAPORE--(BUSINESS WIRE)-- Link to Fitch Solutions' Report: Fitch Solutions' Global Liquidity Scores Commentary - Issue 32 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=525745

Fitch Solutions, a division of the Fitch Group, says that average global CDS liquidity continues to reflect a high degree of CDS market uncertainty, particularly in Europe. Furthermore, its developed market sovereign CDS liquidity index has become less liquid than its emerging market sovereign CDS liquidity index during the past two weeks - suggesting the CDS market may have pulled back from Euro zone sovereigns.

Global CDS liquidity closed at 9.88 on Friday 7 May, versus 9.97 on April 23, whilst Fitch's developed and emerging market sovereign CDS liquidity indices closed at 8.84 and 8.51 respectively on 7 May, versus 8.69 and 8.64 two weeks previously (the lower the liquidity score the greater the CDS liquidity).

"The degree of CDS market uncertainty around Euro zone sovereigns is now likely at unprecedented levels given recent events which culminated in Monday's Euro zone bailout package," said Jonathan Di Giambattista, Managing Director, Fitch Solutions, New York.

"This is likely causing a market pull back from Euro area sovereigns while, simultaneously, concerns over possible contagion have driven liquidity on to other developing and emerging market sovereigns. CDS market activity over the coming two weeks will provide a solid signal as to whether the CDS market has been convinced that both the Euro zone bailout package will work, and the new UK coalition government will be able to tackle Britain's budget deficit," Di Giambattista added.

Elsewhere in this week's commentary, Fitch Solutions finds that 23 out of the 25 most liquid financials are domiciled in North America.

"The combination of the SEC's lawsuit against Goldman Sachs, and ongoing debate in the Senate over the proposed financial regulations bill have resulted in renewed CDS market uncertainty on the prospects for U.S. financials," said Di Giambattista.

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, is available on the agency's website: www.fitchratings.com under - "Fitch Solutions' Global Liquidity Scores Commentary Issue 32."

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 Algorithmics, and is a majority-owned subsidiary of Fimalac, S.A. For additional information, please visit 'www.fitchsolutions.com'; 'www.fitchratings.com'; 'www.algorithmics.com'; and 'www.fimalac.com'.

CONTACT:

Fitch Solutions
Peter Fitzpatrick, + 44 (0)20 7417 4364 (London)
peter.fitzpatrick@fitchratings.com
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com
Jonathan Di Giambattista, +1-212-908-0273 (New York)
Diana Allmendinger, +1-212-908-0500 (New York)

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