The cost of insuring German debt against default hit a record high on Monday on growing worries the eurozone's largest economy will face a hefty bill for a deepening regional crisis. German benchmark five-year CDS prices have jumped more than 50 percent over the past month to 118 basis points, meaning it costs 118,000 euros to protect 10 million euros of debt.
The cost rose 6 bps or 5.2 percent on Monday, according to Markit data, a day after Greece said it would miss a deficit target agreed in a bailout that saved it from bankruptcy. While the Greek announcement helped fuel flows into the deep liquidity of German government bonds, it also showed investors see a growing risk in holding triple-A rated debt.
Germany, the largest sovereign contributor to bailout funds already agreed for Greece, Portugal and Ireland, is expected to pay a high price for any solution to the debt crisis or, given its banks' high exposure to peripheral debt, for any failure to resolve it. "Developments seem to be edging towards Germany taking on more and more risk relating to peripheral economies. And of course even if there aren't further bailouts for those economies, Germany's banks are exposed to the peripheral countries, so they are at risk anyway," Jennifer McKeown, senior European economist at Capital Economics said.