...Major Oil Price Shock: The sharp drop in oil prices to below USD60/b from USD115/b in mid- June 2014 has led Fitch Ratings to downgrade four major oil exporters since 4Q14, making the shock the most important current sovereign rating driver. We forecast Brent oil prices to rise to USD75/b in 2016 and USD80/b in 2017. But if oil prices fail to recover, more negative actions are likely. Countries most at risk would be those with high fiscal breakeven prices and limited buffers and those that fail to adjust policy adequately to lower fiscal and external receipts. Heightened Bond Market Volatility: The sharp rise in eurozone sovereign bond yields, which has seen yields on 10-year Bunds rise to 0.8% from 0.1% in April, is credit positive in so far as it reflects lower deflation risk, and rising inflation and growth expectations, which would support public debt dynamics. However, the speed of the correction also reflected market liquidity conditions and may be a harbinger of global market volatility...
