SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 23 May 2016ContactsIrina Baron Asst Dir-Research Associate irina.baron@moodys.comXian Li 212-553-1404Senior 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 ReportIMF Concessions Help to Lower Greeces Sovereign Credit RiskMarket-based measures of credit risk for most European countries increased over the past week, as the Eurozone economy grew less than expected, despite the improvement in German growth. The largest Eurozone economy advanced 0.7% q/q in the first quarter 2016, compared to the 0.3% expansion in the last quarter of 2015. The European Unions statistics agency reported that overall the Eurozones GDP increased by 0.5% in the first quarter, down slightly from the agencys projection of 0.6%. At its current 0.28%, Europes Sovereign Expected Default Frequency1 (EDFTM) metric, which measures the expected probability of default over a five-year time horizon, is second highest among all global regions, following Latin Americas 2.1%.Greek credit risk measures improved over the past week, with its five-year Sovereign EDF measure falling from 4.48% to 2.88% as of May 20 (See Exhibit 1). Last week, the International Monetary Fund (IMF) proposed to let Greece skip interest payments on its bailout loans until 2040. Greeces creditors, led by Germany, were reluctant to make major concessions, especially without the IMF rejoining the bailout talks as a lender. The decline in Greeces EDF measures suggests that markets agree with Greek Prime Minister Alexis Tsipras optimism that the country will reach an agreement with its creditors before its next debt repayment. The countrys bailout loans are a little over ª200 billion. Greece is expected to make a payment of ª299.1 million on June 7 to the IMF. At 2.88%, Greeces Sovereign EDF measure remains the ...
