While risk pricing across the three entities of the German sovereign, Volkswagen and Porsche CDS contracts may have all enjoyed the same direction of travel through much of last year, the relative relationship has been significantly different over the first 6 months of 2018. As a result, investors in German risk will have been rewarded for a much more discerning approach to risk/reward dynamics this year. For those that now anticipate deeper deterioration in the VW scandal or the German political outlook over the coming months, we would suggest monitoring the Porsche 5Y CDS contract and its potential to play catch up.
Simon Ballard, Exec. Director & Macro Strategist