SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 19 OCTOBER 2015ANALYST CONTACTSGlenn Levine +Assc Dir-Sr Research Analyst glenn.levine@moodys.comXian Li 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 ReportBrazils Economic Woes Push Sovereign Risk Higher Brazils sovereign default risk has steadily increased over the past three years, and it is now the eighth riskiest country in our Sovereign EDF database. Its five-year EDF metric finished the week ended October 16 at 1.94%, putting it 30 basis points higher across the week and 111 basis points higher since the start of 2015. Brazils one-year Sovereign EDF has followed a similar path, currently sitting at 0.53% after starting the year at 0.11%. This rise in Brazils market-based measures of sovereign risk has been largely driven by an increase in CDS spreads on Brazilian government debt. The Market Sharpe Ratio, which is the other key driver of Sovereign EDFs and helps to gauge investor risk aversion, has also risen steadily since April, mirroring the uncertainty seen in global financial markets over this period.FIGURE 1. BRAZIL'S ONE AND FIVE-YEAR SOVEREIGN EDFBrazils Sovereign EDF has been steadily rising since 2013, although the pace of deterioration has accelerated in recent months as weaker commodity demand from China, coupled with domestic political turmoil, has sent the economy into a deep recession. Brazils economy is expected to contract by 2.5% in 2015. The Brazilian real has fallen almost 60% againstMOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 19 OCTOBER 2015 SOVEREIGN RISK REPORT : BRAZILS ECONOMIC WOES PUSH SOVEREIGN RISK HIGHERthe US dollar since the start of 2011, mirroring the consistent decline in the economy. Yet this has done little to boost exports or the broader economy since Brazils export basket is dom...
