SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 1 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 ReportGreek Market Signals Degrade, Political Tensions Pressure Sovereign Credit of Brazil Negotiations between the Greek government and its international creditors are dominating investors concerns about credit risk. Greeces Sovereign Expected Default Frequency 1 (EDF') metric, which measures the expected probability of default over a one year time horizon, continued to increase over the past week from 5.7% to 6.2% as of May 29. Earlier last week, the countrys Finance Minister Yanis Varoufakis announced that Greece will be able to make its next scheduled payment to the International Monetary Fund (IMF). The countrys government also failed to reach an agreement with its lenders by its self-imposed May 31st deadline. The steady rise in its market based risk signals suggest that market participants share the doubts of European Union officials, who believe that Greece has not offered sufficient economic overhauls to finalize the negotiations anytime soon. The two sides have yet to find compromise on value-added tax hikes, fiscal targets, and pension and labor reforms. Greeces Sovereign EDF is currently among the ten highest in the world (see Figure 1).Worldwide market price based measures of credit risk generally worsened in recent days. Sovereign EDF metrics increased in four of the five global regions over the past week, with the Latin America&Caribbean region recording the highest weekly rise in its average risk of default. All of the fifteen countries with Sovereign EDFs in that region experienced a weekly increase in credit risk. Jamaica, Venezuela, and Brazil led the group with the sharpest weekly...
