SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 16 May 2016ContactsIrina Baron Asst Dir-Research Associate irina.baron@moodys.comXian Li 212-553-1404Senior Research Analyst xian.li@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.Sovereign Risk ReportBrazil and UK Sovereign Credit Risk Measures Diverge Sharply on Political EarthquakesMarket-based measures of sovereign credit risk were generally flat to slightly lower this past week. Of the 70 countries in our Sovereign EDFTM (Expected Default Frequency1) database, more than two thirds saw their Sovereign EDF measures decline. Political uncertainty remains the key factor driving investors perceptions of credit risk in Brazil and the United Kingdom, albeit with differing recent effects. As shown in Exhibit 1 below, the divergence in sovereign credit risk is particularly noticeable since the end of 2015. The UKs Sovereign EDF measure has edged up from 0.02% to 0.07% since October 2015; Brazils Sovereign EDF measure fell from 2.45% to 0.58% over the same period.Exhibit 1Sovereign EDF Measures of Brazil (%, lhs) and United Kingdom (%, rhs)Source: CreditEdgeMOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 16 May 2016 Sovereign Risk Report: Brazil and UK Sovereign Credit Risk Measures Diverge Sharply on Political EarthquakesBrazils Sovereign EDF measure rose steadily across most of 2015, with the five-year Sovereign EDF peaking at 2.45% in September before finishing the year at 2.26%. Since then, Brazils market-based measures of sovereign risk have declined. The improvement came despite the countrys political and economic turbulence. On May 12, the Brazilian Senate voted to suspend President Dilma Rousseff while she awaits her impeachment trial. Impeachment proceedings against President Rousseff began in December. Ms. Rousseff is accused of manipulating finances to hide a growing...
