SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 3 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 ReportLong Awaited OPEC Agreement Leaves Global Sovereign Sentiment Unfazed Developments from the International Energy Forum last week in Algiers were closely tracked by investors. On September 28, the Organization of the Petroleum Exporting Countries (OPEC) surprised market participants by announcing an agreement to cut back production for the first time in eight years to a range of 32.5 to 33 million barrels per day down from current levels of 33.5 million barrels per day. This deal has helped oil prices stage a modest recovery, rising from $44.59 to $48.05 as of September 30. Yet that increase has done little to ease the sovereign credit risk of major oil exporters. The five-year Sovereign EDFTM (Expected Default Frequency)1 metrics of six of the seven major oil exporters Saudi Arabia, Qatar, Iraq, Russia, Colombia, and Mexico rose over the past week. The behavior of these probability of default measures hints at market skepticism that the deal will be implemented to effect. The exact logistics of the agreement will not be addressed until OPECs next November 30 meeting in Vienna. Venezuela was the only oil exporter whose market-based default risk benefited from the announcement. The countrys Sovereign EDF measure declined form 17.12% to 13.83% over the past week (Exhibit 1).Saudi Arabia, OPECs dominant producer, played an important part in the agreement reached in Algiers, as it made concessions on Iran and some other countries being exempt from capping production. That represents a dramatic shift for the kingdom, which has said it would reduce its output only if every other OPEC and no...
