It’s no secret inflation and growth concerns have been scaring investors and pressuring markets around the world. Of the largest economies in the world, Europe remains particularly vulnerable to a recession given issues with the cost of living, rising commodity costs and the war in Ukraine. In the market, that’s manifested as an investing exodus out of European assets and a widening of the BTP-Bund spread. (That’s the spread between Italian bonds, as a proxy for peripheral European debt, and safe-haven German sovereign bonds.) But now, another part of the credit market is illustrating just how worried investors are about Europe’s recession risk. Today’s Chart of the Day looks at five-year European high-grade credit default swaps — essentially insurance against a basket of Europe’s healthiest companies. The cost of that insurance has topped 100 basis points, a threshold that has only been met in previous times of crisis. For example, the onslaught of the Covid-19 pandemic in March 2020, early 2016 after a U.S. rate hike and China growth fears, and during the European sovereign debt crisis. All in all, it shows investors are bracing for the worst when it comes to the possibility of a European recession.
You can catch the Chart of the Day segment at 7:45am NYT on Bloomberg Surveillance. If you have a Terminal subscription, enter G #BTV 102 in the search bar. Shout out to Dan Curtis for the chart assistance. If the chart is not visible, it is also attached to the email.