FIRST WARNING: CREDIT PROTECTION EXPLODES UPWARD
We are witnessing a global explosion in Sovereign Credit Default Swap pricing. Costs around the world are up by over 1/3, with China, Indonesia, Japan and Korea in Asia currently the hardest hit by the Coronavirus. Noticeable is also select European countries with the media focused on the cases reported in Italy.
What this means is the cost of Protection for hedging is quickly getting much more expensive. This normally leads to the removal of leverage in a "risk-off" stampede.
So far the market has began "pricing forward" the looming potential global recession. However, it has clearly not yet effectively priced in Covid-19!
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