Today I offer two charts, with a seemingly contradictory message.

The first is for investment bank credit default swaps. I watch these fairly closely as I think they are a useful signal for telling us about perceived risk within the global financial system.

The table below is from my regular updates for the UK Structured Products Association and uses data from Meteor.

The story here is that the price of these swaps has collapsed in the last few weeks. Pretty much across the board, we are back to levels last seen many years ago. In essence, this opaque market is telling us that investors have a low expectation of bank bond defaults. That would imply that investors aren’t breaking out about massive waves of defaults.

And just to repeat – these numbers really are low, very low.

My second chart is also from last week and shows the government bond yields – plus spreads over German bonds – for the last six months. Spanish, German and Greek 10-year bond yields have collapsed to virtually unprecedented levels. On a side note, 10 year UK gilts have also slipped to unprecedented low levels.

These numbers are also telling us a story that is very clear – bond investors in Europe are very worried about a slowdown and recession. At which point presumably we’d see a quantum increase in corporate defaults. Which aren’t being priced in by the bank swaps market?