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In the run-up to Debt Ceiling D-Day on August 2, the United States faces a challenge that is familiar to countries around the world How do you manage your inflows and outflows to avoid defaulting on your debt? But there's a crucial distinction. The U.S. can handle its debt load today (and then some) and its decision to default would be political -- not to mention insane. Every other endangered sovereign debtor is working like mad to avoid a painful default.
Some aren't doing so hot. Portugal's credit rating was downgraded to junk this morning by Moody's. Meanwhile Greece is on the verge of a debt deal that some credit rating agencies might consider the equivalent of default. Who's next? Look to the CDS scoreboard.
The credit default swap (or CDS) market is a good indicator for the health of sovereign debt because it measures investors' eagerness to hedge their bets on a country's debt. For example, Sweden has one of the lowest CDS "spreads" in the world -- its five-year figure is 28 -- indicating that investors have tremendous faith in the country's ability to pay back its debt on time and in full. Meanwhile, Portugal's five-year spread has topped 800 and Greece has doubled this year to nearly 2,000. The United States is at 50.
Markit Credit Research has listed the ten countries with the widest CDS spreads, indicating the nations with the greatest risk of default. Here they are:
They also identified the countries with the greatest spike in CDS spreads over the last three months. The United States is on the list.
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