20160711-穆迪服务-Sovereign_Risk_Report_Brexit_Fears_Linger_in_European_Sovereign_Debt_Markets_19页_648kb

Moody's Sector In-Depth: Brexit Fears in European Sovereign Debt Markets

Core Content Overview

This report from Moody's Analytics examines the lingering effects of Brexit on European sovereign debt markets, focusing on changes in Expected Default Frequency (EDF) metrics and their implications for credit risk and market sentiment. It also provides a comparative analysis of sovereign EDF, CDS-implied ratings, and bond-implied ratings across various countries in Europe and Asia-Pacific, highlighting the impact of Brexit and other economic factors on these markets.

Main Points

Brexit Impact on European Sovereign Debt Markets

• Sovereign EDF Metrics: European sovereign EDF metrics rose again after a brief decline following the Brexit vote on June 24, 2016, indicating persistent concerns over the UK's political and economic stability.
• UK's Sovereign EDF: The UK's five-year Sovereign EDF increased from 0.08% to 0.10% over the past week, surpassing the immediate post-vote peak of 0.09%.
• Political Uncertainty: The UK Conservative Party delayed announcing the next leader and prime minister until early September, contributing to ongoing market uncertainty.
• Bank of England Actions: The Bank of England eased capital requirements and hinted at potential interest rate cuts to stabilize the financial system and economy.
• British Pound: The pound fell to its lowest level since 1985 before recovering slightly, reflecting market volatility and concerns over Brexit.
• Sector Risks: The Banking Group and Real Estate Group showed the highest average CDS-implied EDF, indicating heightened credit risk. The Consumer Products Retail and Wholesale Group experienced the largest rise in credit risk since the start of 2016.
• Retail Sales and Consumer Climate: UK retailers had their worst June sales in a decade, and the GfK Consumer Climate index dropped significantly, signaling a decline in consumer confidence.

Market Sentiment and Funding Stress

• LIBOR-OIS Spread: The spread between three-month LIBOR and overnight indexed swap (OIS) rates increased for the British pound, indicating stress in the interbank funding market.
• Comparison with 2008-09 Crisis: While spreads are higher than pre-Brexit levels, they remain significantly lower than those seen during the 2008-09 financial crisis, suggesting less severe market stress.

Other European Countries Affected by Brexit

• Ireland, Netherlands, Belgium: These countries saw the largest increases in market-based default probability, due to their strong economic ties with the UK.
• Portugal and Spain: Both countries experienced increased sovereign EDF, with Portugal's five-year EDF rising to 0.7% and Spain's yield curve flattening.
• European Commission Actions: Spain and Portugal faced disciplinary measures from the European Commission for missing deficit targets, which could result in fines of up to 0.2% of GDP.

Asia-Pacific Overview

Australia

• Sovereign EDF (5-Year) decreased slightly, while CDS-implied ratings and bond-implied ratings remained stable.
• Senior ratings remained unchanged.

China

• Sovereign EDF (5-Year) increased by 1 basis point, with CDS-implied ratings showing a slight decline.
• Bond-implied ratings and senior ratings remained consistent.

Hong Kong

• Sovereign EDF (5-Year) decreased by 4 basis points, with no changes in CDS or bond-implied ratings.
• Senior ratings remained stable.

Indonesia

• Sovereign EDF (5-Year) decreased by 5 basis points, with CDS-implied ratings showing a slight decline.
• Bond-implied ratings and senior ratings remained unchanged.

Japan

• Sovereign EDF (5-Year) decreased by 4 basis points, with CDS-implied ratings showing a slight improvement.
• Senior ratings remained stable.

Korea

• Sovereign EDF (5-Year) decreased by 4 basis points, with CDS-implied ratings showing a slight decline.
• Bond-implied ratings and senior ratings remained consistent.

Malaysia

• Sovereign EDF (5-Year) decreased by 2 basis points, with CDS-implied ratings stable.
• Senior ratings remained unchanged.

Philippines

• Sovereign EDF (5-Year) decreased by 1 basis point, with CDS-implied ratings showing a slight decline.
• Senior ratings remained stable.

Vietnam

• Sovereign EDF (5-Year) decreased by 1 basis point, with CDS-implied ratings showing a slight decline.
• Senior ratings remained unchanged.

Key Information

• EDF Metrics: EDF measures the probability of default over a given period, derived from market data.
• CDS-Implied EDF: Credit Default Swap (CDS) prices are used to estimate the credit risk of sovereign entities.
• Yield Curves: The flattening of yield curves in Spain and the UK suggests a weakening in market confidence.
• Market Stress Indicators: The increase in the Libor-OIS spread indicates heightened stress in interbank funding markets.
• Sovereign Ratings: Senior ratings are not directly impacted by market-based metrics but reflect long-term creditworthiness.

Conclusion

The report underscores the ongoing impact of Brexit on European sovereign debt markets, with increased EDF metrics and market-based default probabilities for several countries. It also highlights the broader implications for credit risk across various sectors and the relative stability of the Asia-Pacific region compared to Europe. The analysis provides insights into market sentiment and the financial health of sovereign entities, emphasizing the need for continued monitoring of economic and political developments.