After writing about my BRIC decoupling thesis, I asked the friendly chaps at Markit if they could share with me the 5-year CDS spreads for the four countries in question. It turns out that India isn’t really much of a credit — it doesn’t like to issue foreign debt — and that therefore its CDS are very illiquid. But here’s what the other three have done over the past year:
Clearly, while they all tend to move in the same direction, the magnitude of their respective moves is very different. And interestingly, even after the most recent rally, the spread between Russia and Brazil is continuing to gap out, and is now over 500bp:
Remember, historically Russia has trade through Brazil, as you can see: it’s only been trading wide of Brazil in the past two months. So the fact that it’s now 500bp wide of Brazil is kinda crazy. After all, they’re both mainly commodity plays, and their stock markets have both been devastated. But the credit markets show a huge distinction between the two countries which isn’t easily visible elsewhere.
This kind of information has never been more important or interesting, and it’s a tragedy that it’s not more easily available. As Andrew Clavell says:
Opacity equals profitability for the sell side, I suppose; it has always puzzled me why the bond market, many multiples the size of the equity market, has transparency a fraction of that of the equity market.
With any luck, one of the consequences of the credit market is that people simply won’t stand any more for not having credit-market information. Even if your only investment is in a S&P 500 index fund, you’re still probably more interested, these days, in where the CDX is trading than you are in where the S&P 500 is trading. After all, the CDX has been a very good leading indicator of what’s about to happen to your stocks.
I know that Markit is interested in getting its information out there; I look forward to the day when it can be found on Yahoo Finance just as easily as any stock price. In the meantime, we’ll just have to make do with blog entries from people with Bloombergs.