SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 31 October 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 ReportItaly Budget Woes Raise Sovereign Risk Measures Market price based measures of credit risk for most of the peripheral European nations have either held steady or declined over the week ending October 28. The exception was Italys Sovereign Expected Default Frequency (EDFTM) metric)1, which rose from 0.45% to 0.51%, as seen in Exhibit 1 below. The increase suggests that investors are concerned about the tension between the European Commission and Italy as the country unveiled its 2017 budget plan. As with all other Eurozone countries, Italy is expected to cut its deficit by at least 0.5% of GDP a year. Instead, the countrys projections for next year include rise in its structural deficit by 0.4 percentage points to 1.6% of GDP. Italys Economy Minister Pier Carlo Padoan in a letter published on October 27 defended the proposal by citing the migrant crisis, post-earthquake reconstruction and the low growth rate. The commission could reject the budget plan, but this would be an unprecedented move since the Commission received approval powers in 2013.As shown in Exhibit 2, with the exception of the Middle East&Africa region, Sovereign EDF measures generally improved among all other geographical regions. Latin America&the Caribbean recorded the greatest average weekly drop in the average risk of default (-13%). Venezuela and El Salvador showed the strongest weekly improvements in that region. China, India, and Thailand experienced the greatest declines in their Sovereign EDF measures in the Asia-Pacific region. In the Middle East&Africa, Nigeria, Lebanon, and Qatar led the pack, resulting ...
