Friday, July 20, 2012

Spain's 5-year spread outpacing the 10-year

As Spain's sovereign spreads hit a new record this morning, another trend is beginning to develop. The 5-year is outpacing the 10-year spread. The simplest explanation of course is the steepness of the German government curve and the relative flatness of the Spanish curve beyond 5 years. But interpreting this shift in therms of default probabilities tells us that not only have the chances of Spain's failure gone up but also the time to default has been shortened.




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