20160725-穆迪服务-Political_Turmoil_in_Turkey_Jolts_Sovereign_Default_Measures_21页_592kb

Moody's Sovereign Risk Report Summary: Political Turmoil in Turkey and Regional Sovereign Risk Trends

Core Content

This report from Moody's Capital Markets Research (CMR) analyzes the impact of political turmoil in Turkey on its sovereign risk metrics and explores broader regional trends in sovereign default frequency (EDF) and implied ratings. It also highlights the relationship between Turkey's sovereign risk and US monetary policy.

Main Points

Political Impact on Turkey's Sovereign Risk

• Failed Coup Attempt and Emergency: The failed coup on July 15 and the subsequent state of emergency led to a sharp decline in investor confidence and capital flows.
• Market Reactions: Financial markets experienced volatility, with the Borsa Istanbul National 100 Index falling 13.4% in one week.
• Sovereign EDF Increase: Turkey's Sovereign EDF (Expected Default Frequency) rose from 0.69% to 0.97% over the past week, the largest increase among 70 countries tracked.
• One-Year EDF: The one-year EDF also increased from 0.07% to 0.14%.
• Market-Implied Ratings: The EDF measures imply a Ba2 (one-year) and B1 (five-year) rating, indicating non-investment grade credit quality.
• Rating Gap: These market-implied ratings are four notches worse than Moody's Investors Service (MIS) rating of Baa3.
• MIS Downgrade Review: On July 18, MIS placed Turkey's issuer and bond ratings on review for downgrade due to the failed coup's potential impact on economic growth, policymaking, and external buffers.

US Monetary Policy Impact

• Fed Interest Rates: The Federal Reserve kept short-term interest rates in the range of 0.25% to 0.50% in June, citing a slowdown in labor market improvements and weak business investment.
• Housing Data: Strong US housing data boosted expectations for rate hikes, with the 3-month US Treasury yield rising from 0.29% to 0.31%.
• Potential Outflow Risk: Further US rate increases could reduce short-term foreign capital inflows, leaving countries like Turkey with large current account deficits (e.g., $2.86 billion or 4.5% of GDP in May 2016) vulnerable.

Currency and Bond Market Deterioration

• Turkish Lira: The currency weakened significantly post-coup, reaching an all-time low of 3.09 per USD on July 20, before rising slightly to 3.07 per USD on July 22.
• Bond Yields: Turkey's 10-year government bond yield increased from 8.85% to 9.81%, signaling rising risk perception.

Key Information

Regional Sovereign EDF and Ratings Trends

• Asia-Pacific:
  • Australia: EDF (1-year) remained stable at 0.01%, while the 5-year EDF decreased by 2 bps to 0.06%.
  • China: 5-year EDF decreased by 4 bps to 0.28%.
  • Hong Kong: 5-year EDF decreased by 5 bps to 0.08%.
  • Indonesia: 5-year EDF decreased by 16 bps to 0.49%.
  • Korea: 5-year EDF decreased by 4 bps to 0.11%.
  • Malaysia: 5-year EDF decreased by 8 bps to 0.37%.
  • Philippines: 5-year EDF decreased by 2 bps to 0.44%.
  • India: 5-year EDF decreased by 21 bps to 0.44%.
  • Thailand: 5-year EDF decreased by 11 bps to 0.22%.
• Europe:
  • Austria: 5-year EDF decreased by 1 bps to 0.06%.
  • Denmark: 5-year EDF decreased by 6 bps to 0.05%.
  • Finland: 5-year EDF decreased by 6 bps to 0.05%.
  • France: 5-year EDF decreased by 2 bps to 0.07%.
  • Greece: 5-year EDF decreased by 301 bps to 3.04%, and the CDS implied rating dropped to Caa2.
  • Hungary: 5-year EDF decreased by 6 bps to 0.22%.
  • Iceland: 5-year EDF decreased by 23 bps to 0.26%.
  • Italy: 5-year EDF increased by 3 bps to 0.44%.
  • Latvia: 5-year EDF decreased by 10 bps to 0.13%.
  • Lithuania: 5-year EDF decreased by 12 bps to 0.14%.
  • Netherlands: 5-year EDF increased by 2 bps to 0.06%.
  • Norway: 5-year EDF increased by 1 bps to 0.05%.
  • Poland: 5-year EDF increased by 4 bps to 0.26%.
  • Portugal: 5-year EDF increased by 28 bps to 0.65%.
  • Romania: 5-year EDF decreased by 11 bps to 0.32%.
  • Russia: 5-year EDF decreased by 50 bps to 0.43%.
  • Serbia: 5-year EDF decreased by 2 bps to 0.46%.

Conclusion

The report underscores how political instability in Turkey significantly raised its sovereign risk, with EDF metrics indicating a substantial increase in default probability. This event reversed a year-long trend of declining sovereign risk. The report also highlights the interplay between US monetary policy and capital flows, as well as regional trends in EDF and implied ratings. While some countries saw improvements, others, like Greece, experienced notable declines, reflecting heightened risk perception.