The Bank for International Settlements released its March 2009 quarterly report last week. Within the report the BIS makes some observations on supply and demand for government bonds, noting that investor concerns over increasing supply was driving yields noticeably higher in the first few weeks of 2009, and especially in the United States. Investors were worried (and continue to be) about the adequacy of the latest rescue plans for the US financial sector.But Europe was not unscathed with some Euro area countries having to cancel bond auctions, due to a lack of investor demand, and the BIS cites Germany's failure to sell all available bonds, at fixed prices, on several occasions, as has been previously noted here. The BIS says large and rapidly rising fiscal deficits, linked to outsize stimulus packages and government bank guarantees, have also raised investor uncertainty over sovereign credit risk and contributed to rising yields.With this in mind, it is interesting to revisit the sovereign CDS spreads that we reviewed a month ago. Sovereign CDS data provided by Markit Group for Australia, New Zealand and the United States appears in the chart below. Not surprisingly CDS spreads for United States sovereign risk have continued to move steadily wider but spreads for Australia (and New Zealand) have moved sharply wider since early February. This movement coincides with the commencement of AOFM's twice weekly bond auctions. AOFM has certainly not had any difficulty selling its bonds and in fact the auctions have been substantially oversubscribed, mostly around four times, although the rate fell to little more than three times on Friday. However, others in the market are sending a message about their view on our sovereign risk. According to Markit, at current levels, CDS spreads on Australian sovereign risk translate to a 14.6 per cent probability of default in the next five years. For New Zealand the probability of default is 17 per cent and the United States 7.8 per cent.It is interesting to contrast the view of the CDS market on our sovereign credit risk today, with the 'through the cycle' view of the rating agencies. Standard & Poor's assigns 'AAA' long term credit ratings to Australia and the United States and a 'AA+' rating to New Zealand. A 'AAA' rating implies just a 0.27 per cent probability of default over five years. At the 'AA+' rating level S&P's data suggests a 0.20 per cent probability of default over five years - clearly a statistical anomaly.Nevertheless, the probability of default is much, much lower than the CDS market is implying. Who is right?