SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 11 MAY 2015ANALYST CONTACTSGlenn Levine +Assc Dir-Sr Research Analyst glenn.levine@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 ReportJamaican Austerity Lowers Sovereign Risk But Hurts the Economy Market-based measures of sovereign risk in Jamaica have fallen steadily over the past several years as the government implements a steady stream of austerity and reform measures to keep its payments to the IMF and other creditors on track. In recent weeks, Jamaicas risk gauges have shown the sharpest improvement in our database of 84 sovereigns. In the fortnight to May 8th, the one-year Sovereign EDF' (Expected Default Frequency) 1 fell to 0.62%, a decline of 36 basis points or 37% in relative terms. The five-year Sovereign EDF showed a similar decline, dropping from 1.46% to 1.03% over the same period. The rating implied by both the one-and five-year Sovereign EDF now sits at B3. This is an improvement on recent months (the one-year implied rating was Caa2 in mid-2014) but still comfortably within speculative grade. The recent improvement in Jamaicas sovereign risk profile has been driven by both falling investor risk aversion and a decline in the five-year CDS spread, with the spread narrowing from 709bps to 588bps over the past fortnight.FIGURE 1. JAMAICAS ONE-AND FIVE-YEAR SOVEREIGN EDFSignals from government bond markets mirror this trend of declining sovereign risk. Yields on Jamaican government bonds have fallen across the curve, driven by lower risk of default andMOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 11 MAY 2015 SOVEREIGN RISK REPORT : JAMAICAN AUSTERITY LOWERS SOVEREIGN RISK BUT HURTS THE ECONOMYseveral cuts in official interest rates, which also makes it a little easier for the government to service ...
