CDS spreads widen in fourth quarter of 2011

Probability of defaulting on debt obligation rises to 27.6 percent from 21.9 percent at end-2010

Figures released by credit default swaps and bond pricing firm CMA Datavision show that spreads on Lebanon’s five-year credit default swaps (CDS) ended the fourth quarter of 2011 at 447.5 basis points.

Spreads on five-year CDS widened by 17.8 bps from the end of the third quarter.

According the CMA Global Sovereign Credit Risk Report for the fourth quarter of 2011, Lebanon’s five- year CDS spreads widened by 149.4 bps in 2011 compared to the end of 2010. The firm said that Lebanon's CDS spreads widened by just 4.1% in the fourth quarter.

Globally, the worst performers during the quarter were Greece, which posted a widening of 56.8 percent, Egypt with a widening of 34.7 percent, and Sweden with a widening of 22 percent.

CMA Datavision indicated that Lebanon’s five-year cumulative probability of default (CPD) at end-December was 27.6 percent. The five-year CPD on Lebanese sovereigns has thus deteriorated from 26.6 percent at the end of the third quarter. At the end of 2010, Lebanon’s CPD was 19.2 percent.

The CPD quantifies the probability of an issuer being unable to honor its debt obligations over a given time period. Thus, Lebanese debt was less risky than 14 other sovereigns, including Dubai (28 percent), Italy (35 percent), Egypt (36 percent), and Greece (93 percent). Norway had the lowest CPD rate of 3.9 percent.

CMA Datavision kept Lebanon's rating at 'CMA_bb' in the fourth quarter of 2011. It also maintained the ratings of Turkey, Tunisia, Saudi Arabia, Abu Dhabi, and Qatar. However, it downgraded the ratings of Egypt, Bahrain, Morocco, and Iraq. Dubai was the only country in the region which had its rating upgraded during the fourth quarter.