This awaits us all: (sovereign = country)
Last year, Moody's (rating agency) briefly gave all of Iceland's major banks, including Glitnir, a triple-A rating, on the grounds that if they ever got into trouble, the Icelandic government would bail them out.
Fast-forward to today, and Iceland has indeed bailed out Glitnir. But here's the thing: Iceland's credit default swaps are now suggesting that the sovereign itself is a distressed credit.
Fast-forward to today, and Iceland has indeed bailed out Glitnir. But here's the thing: Iceland's credit default swaps are now suggesting that the sovereign itself is a distressed credit.
Contracts on Iceland's debt jumped to 17.5 percent upfront and 5 percent a year to protect 10 million euros ($13.8 million) of bonds.
Local resident:
"The main supermarket can't get imported goods because they have no currency. The shops are half empty. One of the store managers has advised people to start hoarding. We're running out of oil. And winter came last night - about a month early."
One scary datapoint: The assets of Kaupthing Bank amount to 623% of Iceland's GDP, which is possibly why its own credit default swaps are trading somewhere over 2500bp.
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