SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 29 JUNE 2015ANALYST CONTACTSIrina Baron Asst Dir-Research Associate irina.baron@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 ReportGreece and Europe Dance Into the Fire Market participants remain wary over Greeces potential failure to reach a deal with its international creditors. Such an outcome would likely exacerbate the countrys existing financial crisis and cause political turbulence elsewhere in the Eurozone. Concessions made by Greeces Prime Minister Alexis Tsipras to increases in tax and pension contributions ignited hope throughout the region. However, as the week progressed, the inability of the two sides to reach a compromise during emergency debt discussions in Brussels did not weigh on European financial markets this time around. Europes Sovereign Expected Default Frequency (EDF) 1 metrics, which measure the expected probability of default over a one year time horizon, declined by 2% on average over the past week. The relatively small change in the regions default risk implies that investors have already priced in the possibility of another negative outcome in the negotiations. The regions 1.69% average Sovereign EDF measure now exceeds Latin Americas 1.07%.Greeces time to secure a bailout deal ahead of its scheduled $1.7 billion debt repayment to the International Monetary Fund on June 30 is running out. At almost 5%, the countrys Sovereign EDF measure remains the fourth largest probability of default among all Sovereign entities in our dataset (see Figure 1). After yet another fruitless round of negotiations on June 25th, European finance officials postponed negotiations until Saturday, June 27th. The negotiations took a surprise turn over the weekend, when Mr. Tsipras announced a July 5th referendum on w...
