SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 20 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 Sovereign EDF Measures Decline On Bailout Progress Positive developments in Greece over the past week seemed to have affected the Europe as a whole the region with the largest number of countries with market price based risk measures. Greeces Sovereign EDF' (Expected Default Frequency) 1 metrics, which measure the expected probability of default over a one year time horizon, led the group with the sharpest decrease in its probability of default falling from over 20% to 3.17% as of July 17 (see Figure 1) 2 .With its average Sovereign EDF measure of 1.32%, Latin America still exhibits the most credit risk among all regions worldwide, and this past week it suffered the largest weekly deterioration in this measure. Mexico and Colombia were the key drivers of this move, with their Sovereign EDF measures rising by 10% and 6%, respectively. Venezuelas Sovereign EDF measure is the highest of all 72 sovereign entities in our data set. Given the drop in oil prices, investors remain concerned that the country is at risk of a liquidity crisis, as the countrys exports are dominated by petroleum.The Asia-Pacific regions credit risk declined by 27% (see Figure 2), with Malaysia, Thailand, and Indonesia experiencing the greatest improvements in their Sovereign EDF measures. The average credit risk in the Middle East&Africa also strengthened slightly, posting an 8% decline, with Morocco, Pakistan, and Bahrain leading the group.FIGURE 1. GREECES ONE-YEAR SOVEREIGN EDF MEASURE VS. ITS TEN-YEAR GOVT BOND YIELD (%)MOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 20 JULY 2015 SOVEREIGN RISK REPO...
