SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 26 OCTOBER 2015ANALYST CONTACTSIrina Baron Asst Dir-Research Associate irina.baron@moodys.comXian Li Senior 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 ReportEuropean Credit Profile Improves as Further ECB Easing Becomes More Likely Market price based measures of sovereign credit risk eased across most regions in the week ending October 23. The Asia-Pacifics average one-year Sovereign EDF' (Expected Default Frequency) 1 , 2 metric rose from 0.40% to 0.42% in the middle of the week, as investors reacted negatively to news of Chinas slowing growth. The worlds second largest economy grew 6.9% in the third quarter, the weakest rate since 2009, with GDP growth now below the governments 2015 target of 7%. Chinas economy has been hit by weak export demand and the recent stock market turmoil. On October 23, Chinas central bank cut interest rates for the sixth time and removed the ceiling on the rate that banks are permitted to pay depositors. The regions sovereign credit risk metric declined following the rate cut to 0.37% as of October 23. Repeated interest rate cuts and other stimulus measures have not been enough to prevent growth from slowing further, however. The yuan weakened slightly during the week to a rate of 6.35 per dollar on Friday.Figure 1 shows the average change in sovereign expected probability of default over the past week, by broad geographical region. In contrast to the overall improvement in the Asia-Pacific region, the Middle East&Africa recorded weekly rise of 8.84% in the average risk of default with Egypt, South Africa, and Iraq showing the largest deteriorations. In the Latin America, El Salvador, Panama, and Venezuela led the group, resulting in a 1.57% average rise overall.MOODY'S ANALYTICS SOVEREIGN AND SUPRANATION...
