SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 14 November 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 ReportUS Political Shock Jolts Global Credit Risk Measures Donald Trumps stunning win over his Democratic Party opponent, Hillary Clinton, was the dominant factor driving global market-based measures of credit risk since the election. The reaction has been mostly negative. Since the beginning of November, global five-year Sovereign EDFTM (Expected Default Frequency) measures1 broadly declined as national polls revealed Secretary Clinton had a steady but narrow lead over Mr. Trump. After the election results, most of the risk metrics for the 70 sovereign entities that we track increased somewhat. The behavior of these probability of default measures indicates that market participants are wary of a period of intense uncertainty sparked by President-elect Trumps campaign promises to tear up trade deals, restrict immigration, and dismantle the Affordable Care Act, among other notions. Not surprisingly, the United States Sovereign EDF showed one of the largest increases relative to its previous level since Tuesday, rising from 0.04% to 0.06% as of November 11.Mexicos Sovereign EDF measure showed the largest absolute deterioration, rising from 0.46% to 0.66% over the past week (Exhibit 1). The measure had been volatile in the months leading up to the US presidential election. Trumps election challenges the countrys growth prospects and debt dynamics as the president-elect promised to end or overhaul US trade deals with Mexico, including the North American Free Trade Agreement. Mexicos currency plunged by 12% to 20.5 pesos per US dollar, its biggest decline in 22 years.Amid rising fears that the...
