US Government Debt Different - Finance Department - University of ...

Richard Squiremean, however, that the hazard could not manifest in the future.Notably, the US coverage ratio is growing relative to the ratios forother large government borrowers, albeit from a much lower startingpoint.85Table Two: Changes in Government-Debt CDS Coverage Ratios10/30/08 4/20/12 % ChangeUnited Kingdom 0.22% 0.56% 155%United States 0.02% 0.05% 109%Germany 0.50% 0.70% 40%Italy 0.84% 0.79% -7%Portugal 3.47% 2.08% -40%Spain 2.74% 1.52% -45%Ireland 3.87% 1.58% -59%Greece 2.37% 0.75%* -68%* Figure for 10/28/11Sources: DTCC, EurostatAs Table 2 indicates, coverage ratios have increased in recent years forhigh-grade government debt, and have decreased for sovereign debtdeemed riskier. For the riskier countries, the decrease has occurredthrough reductions in net rather than gross CDS notional amounts.Were correlation-seeking to occur in a particular government-debtCDS market, we might expect the net notional amount to holdsteady or even rise, as the market became increasingly dominated byprotection sellers assuming large unhedged positions.Figure 2: Outstanding Government Debt CDSNet Notional/Gross NotionalSource: DTCC