Global Sovereign CDS Spreads Continued to Tighten in Q1 2014

Despite Dispute over the Sovereignty of Crimea, According to S&P Capital IQ Data

Apr 23, 2014 / 09:00 AM
London, UK

London, UK - April 23, 2014 -Global sovereign Credit Default Swap (CDS) spreads in Q1 2014 continued the tightening trend seen in the previous quarter, despite the dispute over the sovereignty of Crimea, according to S&P Capital IQ's latest quarterly Global Sovereign Debt Report - A Market Driven Perspective that is based on S&P Capital IQ CDS.

The report, which focuses on the implied risk profile - the CDS market's current perception - of sovereign debt issuers in S&P Capital IQ's global database over the previous three months, highlights that the Crimea crisis did not cause a widening of spreads in either Western European CDS or in US/UK markets.

However, Russian spreads widened the most globally, rising 30% over the quarter to 215bps as the prospect of sanctions by the US and Western Europe threatened economic growth - as well as basic resources and energy, Russia is used for technology and IT outsourcing by the West. Ukrainian CDS spreads ended the quarter at 902bps, 12% wider than at the end of Q4 2013. CDS spreads in the rest of Eastern Europe were unaffected by the situation and the region's spreads tightened 5% overall in Q1 2014.

"On average, Western European CDS spreads tightened a further 21% in Q1 2014, following the 16% tightening in Q4 2013, and were unaffected by the dispute between Russia and Ukraine," comments Jav Bose, Head of Derivative Valuations at S&P Capital IQ. "The CDS spreads of Cyprus, Portugal, Spain and Greece tightened the most in the region, possibly signalling that their economic recovery is on the horizon."

Argentina remained the most risky sovereign based on market implied risk, with its CDS spreads widening 10% as the second largest country in Central and South America looks to issue overseas bonds for the first time since 2001.

US CDS spreads tightened from 27.5bps to 17.5bps as growth in the world's largest economy and tapering continued.

Norwegian and Swedish CDS spreads remained virtually unchanged from Q4 2013, retaining their status as the least risky sovereigns in terms of five-year CDS.

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About S&P Capital IQ's Global Sovereign Debt Report - A Market Driven Perspective
S&P Capital IQ's Global Sovereign Debt Report focuses on the implied risk profile - the Credit Default Swap (CDS) market's current perception - of sovereign debt issuers in our global database of 76 countries over the previous three months. Divided into six sections, the report provides S&P Capital IQ's proprietary market implied risk rankings together with commentary identifying key trends and potential drivers of changes in perceived risk.

The report defines market implied risk as the five-year cumulative probability of default, calculated using CDS prices compiled by S&P Capital IQ, market assumptions on recovery levels, and an industry standard CDS pricing model. The report and data are collated completely independently of Standard & Poor's Ratings Services and any other qualitative inputs.

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