20140922-穆迪服务-EU_Trade_Deal_Fails_To_Reduce_Ukrainian_Sovereign_Credit_Risk_17页_1mb

Market Signals Sovereign Risk Report Summary

Core Content

This report from Moody's Capital Markets Research, Inc. analyzes market signals related to sovereign credit risk, focusing on Ukraine and other European and Asia-Pacific countries. It highlights how credit default swap (CDS) spreads and bond prices reflect investors' perceptions of default risk and liquidity concerns.

Main Points

• Ukraine's Sovereign EDF Measure:

  • Ukraine's one-year Sovereign EDF™ (Expected Default Frequency) increased by 19% to 2.59% over the week ending September 19, 2014.
  • This makes Ukraine the second largest mover among 84 tracked sovereign entities, following Venezuela.
  • The rise reflects political instability, ongoing conflict in the east, and uncertainty over the delayed implementation of the EU trade deal.
  • Ukraine's credit risk remains the highest in Europe.

• EU Trade Deal and Political Developments:

  • A tentative cease-fire agreement was reached on September 5, 2014, but the full implementation of the EU trade deal was delayed until 2016.
  • The EU imposed sanctions on Russia, which further increased geopolitical tensions.
  • Ukraine granted limited autonomy to pro-Russian territories, including three years of self-governance, Russian language rights, and local control over economic development.

• Market Reactions:

  • Ukraine's sovereign debt prices fell over the past two weeks, signaling increased default risk.
  • The five-year CDS spread widened from 1,008 bp on September 5 to 1,193 bp on September 19.
  • The CDS-implied rating for Ukraine briefly improved but reverted, remaining at C, which is two notches below its Moody's rating of Caa3.
  • The one-year EDF measure of 2.59% corresponds to a B1 rating when mapped to historical default rates.

• Moody's Credit Opinion:

  • Ukraine is rated Caa3 with a negative outlook.
  • Key credit challenges include low institutional quality, deteriorating debt-to-GDP ratio, high domestic and geopolitical risks, and high external liquidity risks.

Key Information

• Sovereign EDF™ is a forward-looking probability of default derived from CDS spreads.
• Market-based credit risk measures show a sharp rise in Ukraine's default risk, contrasting with the overall stability in Europe.
• Russia's Sovereign EDF improved slightly from 0.21% to 0.19% over the same period.
• Asia-Pacific Countries:
  • China, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Thailand, and Vietnam showed relatively stable or slightly improved EDF measures.
  • Hong Kong and Singapore have no bond implied ratings due to lack of bond market data.
  • Bond and CDS implied ratings vary among countries, with some showing improvements or declines over the period.

Summary of Key Entities

Ukraine

• Sovereign EDF (1-Year): 2.59% (up 19%)
• CDS Implied-Rating: C
• Bond Implied-Rating: Caa3
• Senior Rating: Caa3
• Moody's Rating: Caa3 (negative outlook)

Russia

• Sovereign EDF (1-Year): 0.19% (down from 0.21%)
• CDS Implied-Rating: B1
• Bond Implied-Rating: Ba2
• Senior Rating: Baa1

European Countries

• Austria, Belgium, Czech Republic, Finland, Germany, Netherlands, Norway, Poland, Slovakia, and Sweden maintained stable or slightly improved EDF measures.
• Cyprus, Greece, Ireland, Italy, Latvia, Lithuania, Malta, Portugal, Romania, and Slovenia showed varied changes, with some experiencing significant declines in EDF and improvements in implied ratings.

Asia-Pacific Countries

• China, Indonesia, Japan, Korea, Malaysia, Philippines, Thailand, and Vietnam had relatively stable EDF measures.
• Hong Kong and Singapore have no bond implied ratings due to limited market data.

Conclusion

The report underscores the impact of political instability and economic uncertainty on Ukraine's sovereign credit risk, which has risen sharply despite a new EU trade deal. It contrasts this with the overall stability in Europe, where most countries showed minimal changes in their credit risk profiles. The Asia-Pacific region also displayed a mix of stable and slightly improved credit risk indicators, suggesting varying degrees of market confidence.