cma global sovereign...note that cma historical data for cyprus starts on 16th march 2012. globally...

CMA Global Sovereign Credit Risk Report

3rd Quarter 2012

Credit Risk Report

3rd Quarter 2012 Proprietary information

2

Contents

Data: Methodology & Definitions ..................................................................................................................................3

Changes in CMA Sovereign Debt Coverage ................................................................................................................3

Top 10 Most Risky Sovereign Credits ..........................................................................................................................4

Top 10 Least Risky Sovereign Credits .........................................................................................................................5

Largest Percentage Tighteners ....................................................................................................................................7

Largest Percentage Wideners ......................................................................................................................................9

Regional Focus: USA & UK ....................................................................................................................................... 10

Regional Focus: Western Europe .............................................................................................................................. 11

Regional Focus: Emerging Europe ............................................................................................................................ 13

Regional Focus: Scandinavia & Nordic Region ......................................................................................................... 14

Regional Focus: Middle East & Africa ....................................................................................................................... 16

Regional Focus: Asia ................................................................................................................................................. 17

Regional Focus: Australia & New Zealand ................................................................................................................ 18

Regional Focus: Central & South America ................................................................................................................ 19

Global Ranking by CPD ............................................................................................................................................. 21

About CMA & Contact Details .................................................................................................................................... 23

Usage, Redistribution & Publication of Data .............................................................................................................. 23

Disclaimer & Disclosure ............................................................................................................................................. 23

Credit Risk Report


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Data: Methodology & Definitions

This paper focuses on changes in the risk profile of sovereign debt issuers, with the intention to identify key trends

and drivers of change.

We have divided world debt risk into eight regions: USA & UK, Western Europe, Emerging Europe, Scandinavia &

Nordic Region, Middle East & Africa, Asia, Australia & New Zealand and Central & South America. In addition to

identifying themes within each of these regions, macro trends across the sovereign debt sector are also discussed.

All Credit Default Swap (CDS) values contained in the tables and graphs within this document are calculated by

CMA DatavisionTM

– an independent CDS pricing service based on data collected from CMA’s consortium of CDS

buy-side firms. CMA DatavisionTM

is the only CDS pricing service to provide independent, intraday price verification

for CDS (single name, indices, tranches and quantos), Bonds and ABS.

All spreads shown are five year mid PAR spreads which is not the normal convention that is quoted in the market.

CDS quoting conventions vary according to market conditions and conventions. Par spreads are used given they

can be computed consistently across all credits allowing cross comparison.

Unless otherwise stated, data is as of the 28th September 2012 close. Record highs are determined by using

closing values and do not factor in intraday highs.

Cumulative Probability of Default (CPD): quantifies the probability of a country being unable to honour its debt

obligations over a given time period. For sovereign CDS, this typically includes the probability of a restructuring of

debt. Unless otherwise stated, all values are for the five year CPD. CPD is calculated using an industry standard

model and proprietary credit data from CMA DatavisionTM

and is based on the price of the CDS and recovery

assumption. Reference to ‘risky’ in this report is in terms of the CPD.

Data Access: CMA provides independent, intraday pricing on approximately 1,450 single name CDS and CDS

Indices. Widely used by traders, risk managers, treasurers and researchers in financial institutions across the world,

CDS data is available directly from CMA or via our strategic channel partners www.cmavision.com/partners/.

For more information about how CMA can help you effectively monitor and manage your credit exposures please

contact us at [email protected]

Changes in CMA Sovereign Debt Coverage

Deletions:

■ There are no deletions from this quarter’s sovereign report.

Additions:

■ There are no additions to this quarter’s sovereign report.

http://www.cmavision.com/partners/

mailto:[email protected]?subject=CMA%20Global%20Sovereign%20Credit%20Risk%20Report%20Q4%202011%20-%20Feeback

Credit Risk Report


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Top 10 Most Risky Sovereign Credits

Note: CPD is a function of the recovery level which varies according to several factors and distance to default,

e.g. emerging markets assume 25%. Note that CMA historical data for Cyprus starts on 16th March 2012.

Globally Sovereign CDS markets tightened in Q3 2012, with only Tunisia (Bank of Tunisia used as proxy) widening

significantly (16%), although its CPD% is not high enough to appear in this table.

There is one change to the constituents of the top 10 most risky however, with Lebanon entering the table due to

CDS spreads in Ireland tightening from 554bps to 317bps over the quarter.

■ Protection prices in Greece remain extremely illiquid, but still trade according to the Depository Trust &

Clearing Corporation (DTCC) Volume data. Default risks remain high but the cash price of the 2% ’42

Bonds did rally four points from 13.5 to 17.5.

■ CDS spreads in the rest of Western Europe improved by 38% as the ECB, under Mario Draghi, initiating an

unlimited bond buying plan to stabilise the Euro.

■ Spreads in Argentina finish below the 1000bps level as the final payments on the 2002 defaulted bonds are

made.

■ CDS spreads in Spain reached another all time high this quarter, reaching 635bps on 24th July but rallied

strongly, reaching 339bps on the 14th September 2012, before ending the quarter at 384bps.

Position

Q3

Country 5 Year CPD (%) 5 Year CDS Mid

(bps)

Previous Ranking

1 Greece 90-99% 12765 1 (No change)

2 Cyprus 57.3% 985 2 (No change)

3 Argentina 50.5% 954 3 (No change)

4 Pakistan 43.9% 791 5 (Down 1)

5 Venezuela 42.9% 768 6 (Up 1)

6 Ukraine 39.8% 702 7 (Down 1)

7 Portugal 36.5% 499 4 (Up 3)

8 Spain 29.5% 384 9 (Down 1)

9 Lebanon 27.9% 449 New Entry

10 Egypt 27.3% 438 10 (No change)

Credit Risk Report


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2012

2012

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Top 10 Least Risky Sovereign Credits

Position

Q3

Country 5 Year CPD (%) 5 Year CDS Mid

(bps)

Previous Ranking

1 Norway 2.1% 24 1 (No change)

2 Sweden 2.8% 31 4 (Up 2)

3 USA 2.9% 33 2 (Down 1)

4 Switzerland 3.5% 40 3 (Down 1)

5 Finland 3.6% 41 8 (Up 3)

6 UK 4.6% 53 5 (Down 1)

6 Denmark 4.6% 53 New Entry

8 Germany 4.7% 54 New Entry

9 Hong Kong 4.8% 55 7 (Down 2)

10 Australia 5.1% 58 6 (Down 4)

Japan and New Zealand drop out of the top 10 least risky, replaced by Denmark and Germany.

■ Denmark spreads tighten nearly 53% from 113bps to 52bps.

■ Equivalent EUR spreads in Germany are 24bps, implying a CPD of 2.4 and EUR/USD devaluation risk of

50%.

■ The UK tightens to 53bps, following a successful Olympics and falls in unemployment levels.

2012

Credit Risk Report


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Largest Percentage Tighteners

Country 5yr Mid 29th

Jun (bps) 5yr Mid 28th

Sep (bps) Change %

Austria 166.1 69.5 -58.2%

Denmark 113.0 52.7 -53.4%

Germany 100.5 53.9 -46.3%

Finland 77.0 41.4 -46.2%

Sweden 58.2 31.3 -46.2%

Western Europe and Scandinavia top the best quarterly performance tables as spreads tighten significantly over

the quarter.

■ Spreads in Austria tighten 58% bringing the Germany/Austria basis to 16bps, a level last seen in mid April

2011 (see basis chart below).

2012

Credit Risk Report


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0

20

40

60

80

100

120

140

Germany:Austria CDS Basis bps

Credit Risk Report


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2012

Largest Percentage Wideners

Country 5yr Mid 29th

Jun

(bps)

5yr Mid 28th

Sep

(bps)

Change %

Tunisia (Proxy) 288 336 +16.5%

Slovenia 400 387 -3.1%

Lebanon 478 449 -6.1%

Costa Rica 293 275 -6.2%

Global credit markets saw significant tightening across all regions led by Western Europe.

■ CDS spreads in Tunisia widen to 336bps as attacks on the US Embassy sparked concerns over necessary

US Debt guarantees.

■ Slovenia, Lebanon and Costa Rica tighten relatively modestly over Q3 2012.

bps

Credit Risk Report


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2012

Regional Focus: USA & UK

■ UK CDS Spreads remain one of the most stable, breaking below the 50bps point only to creep back at the

end of the quarter.

■ A further round of QE saw a weaker USD, but CDS spreads in the USA tighten 32% to close at 33bps, as

the world contemplates the possibility of Apple reaching a trillion USD market cap.

Credit Risk Report


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2012

Regional Focus: Western Europe

European Sovereign CDS markets rallied significantly in Q3 2012, with volumes in Italy, France, Spain and

Germany leading the traded volume data according to DTCC.

Q4 2012 may be a key quarter for Europe as the market looks for a stabilisation of spreads rather than the volatility

experienced in the first half of the year.

■ Spain and Italy were the main focus of the quarter. Regional bail outs in Spain concerned debt markets,

but CDS prices manage to close the quarter 26% tighter at 384bps. Italy also tightened 26% finishing the

quarter at 350bps.

■ Portugal continued to rally this quarter as well with CDS protection falling to 500bps from 805bps.

■ Spreads in Cyprus tightened to close below the 1000bps level.

■ Ireland spreads rally 43%, but bid/ask spreads to mid ratio widen, indicating CDS liquidity is yet to improve.

Credit Risk Report


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2012

Credit Risk Report


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Regional Focus: Emerging Europe

Eastern European Sovereign CDS, closely correlated to Western Europe, rallied significantly in Q3 2012, with

Poland, Slovakia and Bulgaria all moving in by more than 40%.

■ CDS protection prices in Slovenia barely move over the quarter after widening to 500bps mid quarter.

■ Ukraine spreads tighten 139bps to 703bps.

2012

Credit Risk Report


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2012

Credit Risk Report


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2012

Regional Focus: Scandinavia & Nordic Region

■ Norway remains the least risky global Sovereign.

■ Spreads in Denmark tighten 54% in Q3, in stark contrast to Q2 where the spreads remained unchanged.

■ The cost of protection in Iceland tightens to 228bps from 290bps, but liquidity remains very thin.

Credit Risk Report


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2012

Regional Focus: Middle East & Africa

The region as a whole tightened 12%.

■ Mining woes in South Africa, impacting the mining stocks, had little impact on CDS prices which closed the

quarter at 148bps.

■ CDS spreads in Egypt stabilise following a volatile election in Q2, with spreads coming in nearly 29% to

close at 438bps from 617bps.

■ Tunisia widened 16% to 336bps

Note: Bank of Tunisia is used as a proxy for Tunisia.

bps

Credit Risk Report


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2012

Regional Focus: Asia

The region as a whole tightened 20%.

■ Thailand is the best performer, with CDS spreads closing the quarter at 108bps from 152bps, but Malaysia

has the tightest spreads of the other emerging neighbours (Philippines, Vietnam, Indonesia).

■ Hong Kong spreads tighten to 55bps, 33bps tighter than China.

Note: Bank of India is used as proxy for India.

Credit Risk Report


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2012

Regional Focus: Australia & New Zealand

■ Australia spreads tighten 20% to close at 59bps, as a backdrop of slowing commodity price growth sees

rates lowered by the RBA to 3.25%.

■ New Zealand, closely correlated to its sporting rival and neighbour, also tightens 25%.

Credit Risk Report


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2012

2012

Regional Focus: Central & South America

CDS spreads in the region tightened 23% as a whole, with Peru the best performer.

■ Spreads in Peru tighten closing the quarter 6bps tighter than Brazil, the first time since early 2011 (see

basis chart below).

■ Chile remains the tightest in the region at 83bps.

Credit Risk Report


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-80

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

Brazil:Peru CDS Basis bps

Credit Risk Report


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Global Ranking by CPD

Country CPD (%) 5yr Mid 28th

Sept 2012 (bps)

Greece 90-99% 12765.1

Cyprus 57.3% 985.8

Argentina 50.5% 953.7

Pakistan 43.9% 791.3

Venezuela 42.9% 768.4

Ukraine 39.8% 702.5

Portugal 36.5% 499.9

Spain 29.5% 384.0

Iraq 29.4% 487.5

Lebanon 27.9% 449.0

Italy 27.4% 350.2

Egypt 27.3% 438.2

Ireland 24.9% 316.6

Slovenia 24.4% 387.4

Vietnam 24.4% 305.1

Hungary 24.0% 378.9

India (Proxy) 23.7% 294.0

Croatia 22.4% 348.3

Tunisia (Proxy) 21.5% 335.5

Romania 20.5% 316.0

Dubai 19.8% 302.3

Iceland 18.8% 228.3

Costa Rica 18.0% 275.0

Bahrain 17.6% 267.4

Morocco 15.4% 233.4

Indonesia 12.6% 148.7

Bulgaria 12.4% 183.5

Latvia 12.0% 178.2

Kazakhstan 11.8% 173.8

Lithuania 11.6% 170.5

Belgium 10.9% 126.6

Turkey 10.8% 159.9

Philippines 10.7% 124.7

Israel 10.4% 153.3

Russia 10.3% 150.4

South Africa 10.2% 148.1

France 9.7% 112.2

Slovakia 9.6% 140.3

Uruguay 9.4% 137.8

Credit Risk Report


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Thailand 9.3% 108.1

Poland 8.2% 119.2

Malaysia 7.8% 90.1

Brazil 7.8% 112.4

China 7.7% 88.8

South Korea 7.5% 86.0

Abu Dhabi 7.4% 106.6

Qatar 7.4% 106.8

Peru 7.3% 105.8

Colombia 7.2% 103.6

Mexico 7.0% 101.5

Panama 7.0% 101.0

Estonia 6.9% 100.3

Japan 6.9% 85.4

Saudi Arabia 6.5% 94.0

Czech Republic 6.3% 90.1

Austria 6.1% 69.5

New Zealand 5.9% 67.7

Chile 5.8% 83.4

Netherlands 5.7% 65.1

Australia 5.1% 58.5

Hong Kong 4.8% 55.4

Germany 4.7% 53.9

UK 4.6% 53.0

Denmark 4.6% 52.7

Finland 3.6% 41.4

Switzerland 3.5% 40.1

USA 2.9% 33.0

Sweden 2.8% 31.3

Norway 2.1% 23.6

Credit Risk Report


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About CMA & Contact Details

CMA, the world’s leading source of independent, OTC credit market data, has unrivalled access to information

about what is actually happening in the CDS markets. It combines this unmatched breadth and depth of pricing

data with market-leading technology to deliver clear and valuable information to financial institutions around the

world.

CMA is part of S&P Capital IQ, a business line of The McGraw-Hill Companies, Inc (NYSE:MHP).

CMA DatavisionTM

CMA DatavisionTM

is our intraday and end-of-day CDS pricing service, delivering independent and timely

consensus-based pricing on OTC credit instruments. CMA provides pricing on approximately 1,450 single name

CDS and CDS indices.

If you have questions or comments about this report, or wish to learn more about the products and services that

CMA offers, please contact us:

London New York 20 Canada Square

London

E14 5LH

UK

+44 (0)20 7176 3500

55 Water Street

New York

NY 10004

USA

+1 212 438 4350

Follow CMA on Twitter for intra-day updates: Twitter.com/CMANews

Usage, Redistribution & Publication of Data

For more information please contact us:

Telephone: +44 (0)20 7176 3500

Email: [email protected]

Disclaimer & Disclosure

Please note that CMA does not give investment advice and no part of the above article provided by the author or

CMA shall constitute advice on the merits of buying, selling, subscribing for or underwriting a particular investment.

The ideas and or opinions expressed in this article are the author’s own and do not necessarily reflect those of

CMA. CMA does not guarantee the accuracy of the factual content contained in this article and no advice or

information, obtained by you through or from the enclosed material shall create any warranty or other obligation

between you and the author and/or CMA or any of its affiliates.

Neither the author, nor CMA has any investments in the OTC credit markets.

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cma global sovereign...note that cma historical data for cyprus starts on 16th march 2012. globally...

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