Mummies’ boys – the number 1 variable for predicting Eurozone sovereign stress?!

I was reminded today of the tongue-in-cheek chart that we put on this blog a year ago showing the close correlation between sovereign 5 year CDS (i.e. the cost of insuring governments against default) and the percentage of men aged 25-34 who still live with their parents within the Eurozone founder member countries (credit to JP Morgan).  This was a prompt to do an update, and the outperformance of both Ireland vs Portugal and Spain vs Italy over the last year has helped improve the correlation further.

The comment left on last year’s blog is of course totally accurate though, i.e. beware mixing up correlation and causation.  And for our British readers, the UK fares OK but not wonderfully on this measure, with 20% of men aged 25-34 still living with their folks (see here for full EU list, data as at 2008).  I get a feeling this ratio is going to be rising quite a bit over the coming years.

As an aside and looking at what I wrote last year, it’s interesting to note that France CDS does now indeed trade wider than Colombia, although Colombia has since been upgraded to investment grade.  Next stop for (currently) AAA-rated France is BB rated Philippines.  Philippines 5y CDS is currently about 5bps wider than France, and hit a high of 870bps three years ago.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Mike Riddell

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