SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 25 July 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 ReportPolitical Turmoil in Turkey Jolts Sovereign Default Measures The failed coup attempt in Turkey on July 15 and subsequent state of emergency declared by President Recep Tayyip Erdogan, underlined how political tensions may reduce investor confidence and capital flows. Financial markets were sold off over the past week. The Borsa Istanbul Stock Exchange National 100 Index, shown in Exhibit 1 below, has been volatile since the beginning of this year, and fell 13.4% over the past week. Turkeys Sovereign EDFTM (Expected Default Frequency)1 metric, which measures the expected probability of default over a five-year time horizon, rose from 0.69% to 0.97% over the past week (see Exhibit 1). This increase was the largest among the 70 countries tracked by Moodys Analytics over that period. The one-year Sovereign EDF measure also ticked higher from 0.07% to 0.14%.Exhibit 1Turkeys One- and Five-Year Sovereign EDF Measure (%)Source: CreditEdgeMOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 25 July 2016 Sovereign Risk Report: Political Turmoil in Turkey Jolts Sovereign Default MeasuresExhibit 2Borsa Istanbul 100 Index vs. Turkeys Five-Year Sovereign EDF MeasureThe uptick in Turkeys Sovereign EDF measure reverses the trend seen throughout the year towards lower sovereign risk. The rating implied by its one- and five-year Sovereign EDF measures are Ba2 and B1, respectively, suggesting a non-investment grade credit quality. These market-implied measures have been consistently worse than the Moodys Investors Service rating since it was upgraded to Baa3 in May 2013. The five-year market-based...
