SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 17 AUGUST 2015ANALYST CONTACTSIrina Baron Asst Dir-Research Associate irina.baron@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 ReportChinas Yuan Devaluation Had Little Effect On Global Sovereign Credit Risk MeasuresMarket price based measures of credit risk had mixed results over the week ending August 14. The Asia-Pacific regions average Sovereign EDF'(Expected Default Frequency) 1 ,2 metrics, which measure the expected probability of default over a one-year time horizon, increased by 5.8%, as investors reacted to The Peoples Bank of Chinas first substantial yuan devaluation in over 20 years, which began on August 4 and lasted three days. The Chinese currency had weakened by 3% against the US dollar, and strengthened mildly on Friday as it settled at 6.3975 per dollar. Thailand, Indonesia, and Malaysia experienced the greatest increases in their Sovereign EDF measures within that region.The average change in sovereign expected probabilities of default over the past week, by geographical region, is shown in Figure 1. Latin America recorded the second largest weekly drop in the average risk of default (7.1%). Within that region, Brazil, Costa Rica, and El Salvador showed the strongest weekly improvements. In the Middle East&Africa, Algeria, Pakistan, and Morocco led the group, resulting in an average 6.2% fall in the Sovereign EDF for the region.European Sovereign EDF measures fell by an average 9.5%. The region finally felt some relief from a long streak of rising default risk as lawmakers in Athens endorsed the austerity measures necessary for Eurozone finance ministers to sign off on an ª86 billion bailout.FIGURE 1. AVERAGE WEEKLY CHANGE IN SOVEREIGN EDF MEASURES BY REGION(%)MOODY'S ANALYTICS SOVEREIGN AND SUPRANAT...
