SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 8 February 2016ContactsIrina Baron Asst Dir-Research AssociateMAirina.baron@moodys.comXian Li 212-553-1404Senior Research AnalystMAxian.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.In republication, South Africas Sovereign EDF measure, mentioned on page 2, was changed from 18% to 0.18%. In addition, the reason for the vulnerability of South Africas economy to the Fed rate hike was revised to the countrys persistent, although shrinking, current account deficit.Sovereign Risk ReportEU Vote Raises UK Sovereign Credit RiskIssuer-specific considerations were the key drivers for much of the sovereign debt market in the past week, after having previously been influenced by anticipated changes in US monetary policy and oil price fluctuations. Specifically, market-based probability of default measures for the United Kingdom increased as citizens prepared to vote on whether it should remain in the European Union (EU). The UKs five-year cumulative Sovereign EDFTM (Expected Default Frequency)1 measure has more than doubled since October, rising from 0.028% to its current 0.064% (see Figure 1). Credit risk measures for other sovereigns in the region have recently diverged, with Germanys Sovereign EDF measure declining from 0.031% to 0.025% since October, and Italys EDF metric remaining relatively flat.Since his reelection in May 2015, UK Prime Minister David Cameron has been pushing reforms to help boost competitiveness while ensuring national sovereignty. One of the most controversial reforms is a four-year ban on in-work benefits for EU migrants, a measure that goes against the EUs founding principle of freedom of movement. Mr. Cameron hopes to negotiate the proposed reforms with EU policymakers before the likely referendum in June.MOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 ...
