Kaminsky's Call: Avoiding Sovereign Debt, and Instead Opting for Corporates?

Why are investors avoiding sovereign debt, and instead opting for corporates?

My co-host, David Faber, said it best on yesterday's show as he remarked, "When investors are more anxious lending to entire countries than they are to companies with precarious debt ratings, you know you've got a credit conundrum on your hands."

Tim Backshall, Chief Credit Derivatives Strategist at Credit Derivatives Research, phoned in to the program, and made some very interesting points. Specifically, his comments on sovereign CD's reflecting years of over-spending and their close alignment with bonds stood out. We also concurred that there will be continued stress on European governments.

I spoke with Tim after the show and asked where we can see damage if sovereign credits do continue to deteriorate. His answer became an essential elaboration.

Backshall would expect to see notable deterioration in European financials should we see further deterioration in European sovereigns.

The current relationship between financials and those in different sectors is too narrow, he argues, relative to the sovereign risks.

As for U.S. financials, Backshall warns to expect connected contagious risk from this, but not nearly as much debacle as the European banks will experience.

Personally, I think it makes makes little sense that some fixed income managers are piling into junk credit like kids in a candy store while apparently selling sovereign at same time. If a global double dip happens, the downside on corporate junk is much more daunting than it is for sovereign debt.

But back to Backshall, with guests this informative, our monitoring of this situation is augmented. As sovereign debt goes, so does sentiment on the global economy. We will cover this closely on The Strategy Session.

Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.

Gary Kaminsky does not hold any equity positions.

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