SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 14 SEPTEMBER 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 ReportFalling Sovereign Risk Mirrors Ukraines Improving Economy Sovereign credit risk in Ukraine has fallen dramatically in recent months. The one-year Sovereign EDF finished the week ended September 11, 2015 at 1.81%, slightly higher than at the start of the week, though it has fallen steadily since May after briefly touching the 50% ceiling for Sovereign EDF measures in March. Ukraines five-year gauge has followed a broadly similar path. The five-year EDF was near 50% in March and jumped briefly to 40% in April, but finished the week ended September 11 at 4.78%.FIGURE 1. UKRAINES ONE AND FIVE-YEAR SOVEREIGN EDFThe improvement in Ukraines sovereign risk profile has come amid moderate government debt relief and a more stable economic environment. The Ukrainian government secured a $3.6 billion writedown on its debts in late August following seven months of negotiations. The 20% haircut caused an immediate drop in the one-and five-year Sovereign EDF metrics and a jump in government bond prices. The government also secured a postponement in its payment schedule.MOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 14 SEPTEMBER 2015 SOVEREIGN RISK REPORT : FALLING SOVEREIGN RISK MIRRORS UKRAINES IMPROVING ECONOMYFIGURE 2. UKRAINIAN GOVERNMENT BOND PRICESThese successful debt negotiations can be viewed as both a cause and effect of the underlying improvement in Ukraines economy. GDP fell 6.8% in 2014 and is expected to contract a further 9% this year, although this is entirely due to an abysmal first half; Ukraines economy may expand modestly in the second half of 2015. The fiscal defici...
