The probability of a Greek sovereign default deteriorated to yet another new high this past week. The one-year CDS-implied EDF(Expected Default Frequency) credit measure for Greek government debt reached as high as 33.33% (Figure 1), up from 23.87% at the close of the previous week.
The country’s annualized five-year EDF metric was as high as 24.75%, up from 17.29% at the end of the week before. The five-year annualized EDF metric equates to a 76% non-annualized (cumulative probability that Greece will default sometime over the next five years.
We caution against taking the precision of these levels at face value, as credit markets tend to be fairly illiquid here, and price swings can be large from one day to the next. Bond yields and spreads are even less meaningful, as distressed debt tends to trade on a dollar price basis at deep discounts to par, rather than on a yield or credit spread basis.
On Friday, European finance ministers postponed until October a decision to pay the next installment of last year’s rescue plan, prompting Greek government officials to meet over the weekend to discuss additional austerity measures. Earlier in the week, French President Nicolas Sarkozy and German
Chancellor Angela Merkel declared they envision Greece will remain within the euro system. But they announced no new policy measures that would prevent a Greek debt default. Selected news headlines treated a Greek sovereign debt default as “imminent.”
The worsening trend for Greece stood in contrast to improvements in virtually all other sovereign debt markets throughout the week (Figure 1, 2). Valuations were helped by two factors. Five major central banks acted to provide liquidity to the global banking system, in order to prevent the provision of credit from grinding to a halt. In addition, news reports surfaced that countries such as China and Brazil are considering buying debt of some of the peripheral European nations.
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(용어참고: CDS-implied EDF (Expected Default Frequency) credit measures are the market’s collective assessment of the probability of default, extracted from observed credit default swap spreads and adjusted for loss-given default and the market price of risk. EDF-implied ratings are EDF credit measures mapped to the Moody’s rating scale.)
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MARKET SIGNALS SOVEREIGN RISK REPORT
written by Moody's Analytics, 작성자
Jerry H. Tempelman, CFA Director
Yukyung Choi, Associate Director
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