SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 21 SEPTEMBER 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 ReportGlobal Sovereign Risk Measures Decline as Fed BlinksGlobal markets kept their focus on the US Federal Reserves interest rate decision on September 17, at the conclusion of its two-day policy meeting. The short-term policy rate has been kept near zero since December 2008 in a bid to boost economic growth with low borrowing costs. The Fed decided to leave interest rates unchanged, suggesting that recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. The improvement in market-based measures of credit risk leading up to the Feds decision suggests that investors had anticipated this outcome given a gloomy outlook for Chinas economy and recent turmoil in financial markets. Sovereign EDF' (Expected Default Frequency) 1 , 2 metrics, which measure the expected probability of default over a one-year horizon, fell by 29%, on average, across the week.The average change by geographical region in sovereign probability of default is shown in Figure 1. Asia Pacific recorded the largest weekly drop in the average risk of default (33.71%). Within that region, Thailand, Korea, and Vietnam showed the strongest improvements. In the Latin America region, Chile, Costa Rica, and Guatemala experienced thegreatest declines in their Sovereign EDF measures. In the Middle East&Africa, Morocco, South Africa, and Algeria led the group, resulting in an average 33.14% fall in the Sovereign EDF for the region. Sovereign EDFs in Europe fell by an average 31.01%.MOODY'S ANALYTICS SOVEREIGN AND SUPRANA...
