Sovereign debt worries back on the radar

Judging from recent action in the dollar and in the stock market, Dubai's announcement that it will put debt payments on hold reminded all of us that despite recent gains in global economic activity, unexpected surprises in the debt markets still have the potential to rattle investors.

Furthermore, Dubai's problems may be followed by troubles in Greece (see Greek debt threatens euro - Business Week), which is struggling with high debt loads of its own.

However, concerns that defaults in emerging markets might spread to major institutions in Europe and the US appear to be limited at this time given that measures of risk, such as swap spreads or LIBOR, remain at pre-credit crisis levels.