A day after reaffirming the top sovereign credit rating of Austrian government bonds, a research arm of respected French credit rating agency Fitch issued a report noting the rapidly deteriorating level of confidence investors in the derivatives market are displaying towards that country's debt.
2012 began on an overall quiet note with respect to credit default swap (CDS) spreads, though a closer look reveals regional distinctions emerging, read a press release from Fitch Group research unit Fitch Solutions circulated Wednesday afternoon. The release noted the availability of a new report by the agency on the state of the credit default swap derivatives market.
Spreads on Austria widened 22 percent due to market concerns on its exposure to Hungary, which CDS came out 11 percent last week, Diana Allmendinger, who authored the report, said in a statement.
CDS spreads widen as investors bid up the price of insurance against default of a country's debt.
Austria is one of the last remaining AAA sovereigns within the 17-nation Eurozone. Germany, France, Finland, the Netherlands and tiny Luxembourg round out the list. The fallout that would result if any of those countries lost their golden borrower status would likely go beyond national borders, as the credit rating of the wider European Union depends on that of its members.
Investors are concerned Austria will have to bail out some or all of its financial institutions, all of which engaged in high levels of lending to consumers in Austria's Eastern European neighbor, Hungary. Those institutions have suffered massive losses recently as the Hungarian economy and currency have deteriorated, a situation exacerbated by the anti-foreign bank position of Hungary's leading politicians.