At the same time, the spreads for the Irish, Portuguese and Spanish government bonds also went up, by around 150, 230 and 90 basis points, respectively (see chart 1). Similarly, premia on credit default swaps (CDSs), a proxy for sovereign risk, also increased substantially. Interestingly, the CDS premium on German government bonds (i.e. the price to insure against their default – whatever that means!)
increased to close to 60 basis points (see chart 2). Additional evidence regarding government bond dysfunctions is reflected by the daily changes in their prices: as shown in chart 3 this measure of uncertainty peaked in May 2010. Tensions spilled over into market segments other than government bonds.