The chart below presents the top 20 sovereigns with the largest amount of net CDS (not gross) notional outstanding. Interestingly, Spain, with its $11.1 trillion in net notional, has the most net risk exposure, second only to General Electric (parent of brutally realistic and objective financial news station CNBC). Additionally, the chart demonstrates not just the current spread of any given sovereign's CDS level, but also the phenomenal tightening that has occurred since March 6. What is surprising, is that as corporate risk has been socialized by sovereigns all over the world (most notably in the US), this chart indicates that some entity has also been socializing sovereign risk: Zero Hedge would love to know who that could be. Absent that logical explanation, the only other reason for the 150 bps average tightening is that trading is based exclusively on technicals (read squeeze), which is to be expected: after all technicals (and induced squeezes) are the driving force behind virtually all capital markets lately.

Cynical rationalization notwithstanding, the fact that accounts have expressed such a pervasively gloomy opinion of Spain indicates that, squeeze aside, the trouble in Europe will most likely start with this fine, siesta-loving country. Indeed, with a 17% unemployment rate, a subprime crisis that can easily hold at least 10 rounds with its US heavyweight equivalent, and the absence of a currency that would allow it to inflate itself out of its economic hole, the holders of $11.1 trillion in CDS may just be on to something.

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