SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 7 JULY 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 No Vote Ups Pressure on European OfficialsAs Greeces economic and political turmoil deepens, its market-based measures of credit risk reached the highest levels since the global sovereign crisis in 2012. The countrys Sovereign EDF' (Expected Default Frequency) 1 measure has shown extreme volatility in recent weeks following the dramatic twists and turns in the negotiations between Greek officials and the countrys international creditors. Greeces Sovereign EDF almost tripled from its June 26 value of 4.99% to 16.43% on June 30, as the country missed a $1.7 billion debt repayment to the International Monetary Fund (IMF). Greece is now in arrears and will not receive any further emergency funding, making it harder for the ailing country to recover.Uncertainty over the future of Greece increased after the preliminary results of the referendum held on July 5 were announced. Greeks overwhelmingly voted against accepting the economic terms offered by the countrys lenders. Greeces Sovereign EDF measure rose to 18.38% on July 6 (Figure 1). The recent increase also reflects concerns over liquidity of the Greek banking system, as Athens ordered banks to stay closed and imposed capital controls to prevent further flight of funds. An emergency Eurozone summit will take place on July 7 to discuss the consequences of the bailout referendum. The future of the European Union lies in the hands of Eurozone political leaders, who may face requests for debt relief from countries like Portugal, Spain, and Italy if they give in to Greeces demands. On the other hand, refusal may lead to the collapse of the Gr...
