SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 23 NOVEMBER 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 ReportEgypts Ailing Economy Increases Credit Risk The recent deterioration in Egypts economic outlook has led to a sharp increase in its sovereign risk profile. The one-year EDF for Egyptian government debt increased from 0.09% in early-October to 0.18% in the week ended November 20. Egypts five-year Sovereign EDF, meanwhile, rose from a low of 0.68% to the latest figure of 1.18%. These numbers are still comfortably below those seen in 2013 when the volatile political situation resulted in the Egyptian army taking control of the government in a coup d'?tat, pushing the five-year Sovereign EDF to 3.3% but still constitute a material deterioration in credit risk. The five-year EDF measure corresponds to an implied rating of B1, which is comfortably non-investment grade. The Moodys agency rating sits two notches lower, at B3.FIGURE 1. EGYPTS ONE- AND FIVE-YEAR SOVEREIGN EDF MEASURES (%)MOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 23 NOVEMBER 2015 SOVEREIGN RISK REPORT : EGYPTS AILING ECONOMY INCREASES CREDIT RISKThe increase in Egypts Sovereign EDF measures has been driven by rising CDS spreads. The five-year CDS spread was 325 basis points in late-September, rising to 456bp on November 20. Investor risk aversion, as measured by the Market Sharpe Ratio the other key driver of CDS-implied-EDFs is the loss given default, assumed constant at 75% for sovereigns remains elevated, but has been decreasing since early-October. That said, if not for the recent fall in investor risk aversion, Egypts Sovereign EDF metrics would be higher.FIGURE 2. KEY DRIVERS OF EGYPTS SOVEREIGN E...
