This is not a surprise, but the market is now assigning a significantly higher probability of default to European investment grade corporate credits than to US firms. The chart below compares iTraxx Europe (European corporate CDS index) with IG CDX.
|Markit iTraxx Europe vs IG CDX (click to enlarge)|
We've seen this widening in the fall of last year during periods of extreme stress and it is back close to the highs again. This spread is turning out to be good indicator of the Eurozone stress level.
Note that back in 2009 the spread was negative, as US firms were perceived to be riskier than their European counterparts. Amazing how much things have changed in three years.
|Spread between iTraxx Europe and IG CDX|