SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 26 MAY 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 ReportECB Actions Lower European Credit Risk Measures Despite Rising Greek Concerns The European Central Bank (ECB) announced on May 19 that it may expand its bond buying program in May and June, due to anticipated low liquidity during the summer months. These actions are geared toward keeping interest rates low and boosting economic growth. In response, market-based measures of credit risk of European countries eased somewhat over the past week. However, the average Sovereign EDF' (Expected Default Frequency) 1 metric, which measures the expected probability of default over a one-year time horizon, remained largely unchanged in Europe as a whole (Figure 1). The reason was mixed reports on economic activity that show that the long period of stagnation continues to affect the pace of recovery. Manufacturing activity in Germany, the regions largest economy, slowed, but picked up in France. Markits eurozone Composite Purchasing Managers Index (PMI), a measure of activity in the manufacturing and services sectors, decreased for the second month in a row, from 53.9 in April to 53.4 in May 2 . Market participants seem to be wary that investment and spending in the eurozone will not substantially accelerate without further involvement of local governments.Market price based measures of credit risk in other regions were generally unchanged as well. Turkey, Saudi Arabia, and South Africa were the leading drivers of an average 2% decline in the Sovereign EDF for the Middle East&Africa region. Hong Kong, Indonesia, and Malaysia experienced the largest declines in Sovereign EDF measures in the Asia-Pacific region. ...
