CEE CDS: At a Critical Juncture

Our short-term positive view on central European external debt has played out with Polish, Hungarian, Czech and Slovak benchmark 5-year credit default swap (CDS) spreads all narrowing by over 50% since mid-March. Recent trading though, suggests that the derivatives are now at a critical juncture facing significant short-term resistance. While a breach through these levels would indicate renewed spread contraction back to levels seen before the credit crunch, we believe that a widening is looking more likely.

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