10 SEPTEMBER 2012

CAPITAL MARKETS RESEARCH

MARKET SIGNALS SOVEREIGN RISK REPORT

Moodys Capital Markets Research, Inc. Authors
Jerry H. Tempelman, CFA Director 1.212.553.1434 Jerry.Tempelman@moodys.com Yukyung Choi Associate Director 1.212.553.0906 Yukyung.Choi@moodys.com

Sovereign Debt Markets Give Big Thumbs Up to ECB Debt Purchase Plan
Market-based probabilities of default of so-called peripheral European nations such as Spain and Italy improved dramatically this past week, as the European Central Bank announced its much-anticipated government-debt purchase program that many policymakers consider their best near-term defense against a break-up of the euro. Spains one-year CDS-implied EDFTM (Expected Default Frequency) credit measure, for example, fell from 0.70% to 0.41% on the week, while its cumulative 5year EDF metric went from 5.57% to 3.01%; Italys declined from 0.57% to 0.33% and from 4.80% to 2.48%, respectively. 1 Portugals and Irelands EDF measures improved as well, albeit to a lesser extent than those of Spain and Italy (Figure 1). Figure 1. Five-year cumulative EDFTM measure of selected sovereign issuers
Portugal 30% Ireland Spain Italy

About
Analyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency. CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products. Read the CMRG FAQ capitalmarketsresearch@moodys.com

24%

18%

12%

6%

0% Jan10

Sep10

May11

Jan12

Sep12

CDS-implied EDFTM (Expected Default Frequency) credit measures are the markets 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 Moodys Investors Service rating scale.

Moodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research, Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products. For further detail, please see the last page.

CAPITAL MARKETS RESEARCH

Other market-based risk measures showed similar changes. Two- and 10-year government bond yields of both Spain and Italy dropped precipitously (Figures 2, 3). Spains 10-year yield closed this past week at 5.63% and Italys at 5.06% their lowest levels since May of this year, when yields had fallen in the wake of the ECBs longer-term refinancing operations. In contrast, 10-year yields of higher-quality countries such as Germany, the Netherlands, Austria, Finland, and Norway all increased this past week, as investors continued to reverse the flightto-quality posture they had assumed earlier this summer. Figure 2. 2- and 10-year generic government bond yields of Spain
%

Diff

2-yr

10-yr

8 7 6 5 4 3 2 1 0 Jan10

Sep10

May11

Jan12

Sep12

Figure 3. 2- and 10-year generic government bond yields of Italy

%

Diff

2-yr

10-yr

8 7 6 5 4 3 2 1 0 -1 Jan10 Sep10 May11 Jan12 Sep12

10 SEPTEMBER 2012

MOODYS CAPITAL MARKETS RESEARCH, INC. / MARKET SIGNALS SOVEREIGN RISK REPORT / MOODYS.COM

CAPITAL MARKETS RESEARCH

European equity indices improved as well. The Spanish IBEX 35 Index and the Italian FTSE MIB Index were each up almost 7% on the week, and both have now increased more than 30% since their lows in late July (Figure 4). Figure 4. Major European equity indices (March 19 = 100)
FTSE 100
104 100 96 92 88 84 80 76 72 68 3/19 4/7 4/26 5/15 6/3 6/22 7/11 7/30 8/18 9/6

DAX

CAC 40

Euro Stoxx

FTSE MIB

IBEX 35

The ECBs plan comes in spite of strong opposition from the German Bundesbank, the ECBs largest constituent central bank. In recent weeks, Jens Weidmann, head of the German Bundesbank, reiterated the Bundesbanks objection to government bond purchases by the ECB in an interview in Der Spiegel. Bond purchases are a form of fiscal rather than monetary policy, he noted, which should be decided by governments and legislatures rather than central banks. In addition, they come with a moral hazard, namely a reduced incentive for struggling countries to implement the structural reform measures necessary to make them internationally competitive. According to a report in Bild, Weidmann offered to resign over the bond purchases, as did his predecessor last year. ECB President Mario Draghi replied with an editorial published in Die Zeit, arguing that government debt purchases by a central bank can be justified if financial markets are not functioning properly and thereby impair the transmission mechanism of monetary policy. Perhaps due to the Bundesbanks dissent, and unlike the ECBs previous bond-buying program, the new bond purchases come with several meaningful strings attached. Among these is adherence to strict and effective conditionality of the European rescue facilities by a country whose debt the ECB would be purchasing. Thus, a country would first need to formally apply for financial assistance. Spain, for one, this past week reiterated that it remains undecided whether to submit such an application. To be sure, the rescue facility by whose conditions a country in question is to abide could be either a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line). This is likely to make the next step the outcome of a political negotiation: a country in need of a rescue will likely seek to negotiate how much oversight it will accept in return for receiving assistance, including the purchase of its debt by the ECB. We believe that due to the consequent uncertainties, market participants are likely to revisit their recent enthusiasm some time before October, when Spain faces a significant refinancing hurdle.

10 SEPTEMBER 2012

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CAPITAL MARKETS RESEARCH

Asia-Pacific
10-AUGUST-12 17-AUGUST-12 24-AUGUST-12 31-AUGUST-12 07-SEPTEMBER-12 YEAR AGO 12 MO CHANGE

Australia (75300) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating China (599085) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Hong Kong (375515) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Indonesia (405130) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Japan (423746) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Korea (440230) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Malaysia (460522) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.05% A3 Baa1 A3 0.05% Baa1 Baa1 A3 0.05% Baa1 Baa1 A3 0.05% Baa1 Baa1 A3 0.04% A3 Baa1 A3 0.16% A3 Baa1 A3 -12 bps 0 0 0 0.05% Baa1 Baa1 A1 0.05% Baa1 A3 A1 0.05% Baa1 A3 A1 0.05% Baa1 A3 Aa3 0.04% A3 A3 Aa3 0.19% Baa1 Baa1 A1 -15 bps +1 +1 +1 0.04% A3 Aaa Aa3 0.04% A3 Aaa Aa3 0.04% A2 Aaa Aa3 0.04% A3 Aaa Aa3 0.03% A2 Aaa Aa3 0.14% A3 Aaa Aa3 -11 bps +1 0 0 0.09% Baa2 Baa2 Baa3 0.09% Baa3 Baa2 Baa3 0.09% Baa2 Baa2 Baa3 0.11% Baa3 Baa2 Baa3 0.08% Baa2 Baa2 Baa3 0.23% Baa2 Baa2 Ba1 -15 bps 0 0 +1 0.03% Aa3 Baa1 Aa1 0.03% A1 Baa1 Aa1 0.03% Aa2 Baa1 Aa1 0.03% Aa3 A3 Aa1 0.03% Aa3 Baa1 Aa1 0.09% Aa1 A3 Aa1 -6 bps -2 -1 0 0.05% A3 Aa2 Aa3 0.04% A3 Aa2 Aa3 0.04% A3 Aa2 Aa3 0.05% Baa1 Aa2 Aa3 0.03% A3 Aa3 Aa3 0.16% A3 Aa1 Aa3 -13 bps 0 -2 0 0.02% A1 Aaa Aaa 0.02% A1 Aaa Aaa 0.02% Aa3 Aaa Aaa 0.03% A2 Aaa Aaa 0.02% A1 Aaa Aaa 0.07% Aa1 Aaa Aaa -5 bps -3 0 0

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MOODYS CAPITAL MARKETS RESEARCH, INC. / MARKET SIGNALS SOVEREIGN RISK REPORT / MOODYS.COM

CAPITAL MARKETS RESEARCH

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12 MO CHANGE

New Zealand (553700) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Philippines (607410) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Singapore (680430) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Sri Lanka (600023158) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Taiwan (732845) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Thailand (747330) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Vietnam (600023790) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.27% Ba1 Ba1 B1 0.26% Ba1 Ba1 B1 0.26% Ba1 Ba1 B1 0.28% Ba1 Ba2 B1 0.26% Ba1 Ba2 B1 0.94% Ba2 Ba2 B1 -68 bps +1 0 0 0.06% Baa1 Baa3 Baa1 0.07% Baa2 Ba1 Baa1 0.06% Baa1 Ba1 Baa1 0.07% Baa1 Baa3 Baa1 0.05% Baa1 Ba1 Baa1 0.19% Baa1 Baa3 Baa1 -14 bps 0 -1 0 0.04% --Aa3 0.04% --Aa3 0.04% --Aa3 0.04% --Aa3 0.04% --Aa3 ---Aa3 ---0 0.37% Ba2 Ba1 B1 0.35% Ba2 Ba2 B1 0.36% Ba2 Ba2 B1 0.51% Ba3 Ba2 B1 0.35% Ba2 Ba1 B1 0.73% Ba1 Ba1 B1 -38 bps -1 0 0 ---Aaa ---Aaa ---Aaa ---Aaa ---Aaa 0.08% Aa1 -Aaa ---0 0.07% Baa2 Baa1 Ba2 0.07% Baa2 Baa1 Ba2 0.07% Baa2 Baa1 Ba2 0.08% Baa2 Baa1 Ba2 0.06% Baa2 Baa1 Ba2 0.22% Baa2 Baa2 Ba2 -16 bps 0 +1 0 0.04% A3 -Aaa 0.03% A3 -Aaa 0.03% A2 -Aaa 0.04% A3 -Aaa 0.03% A3 -Aaa 0.09% Aa2 -Aaa -6 bps -4 -0

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MOODYS CAPITAL MARKETS RESEARCH, INC. / MARKET SIGNALS SOVEREIGN RISK REPORT / MOODYS.COM

CAPITAL MARKETS RESEARCH

Europe
10-AUGUST-12 17-AUGUST-12 24-AUGUST-12 31-AUGUST-12 07-SEPTEMBER-12 YEAR AGO 12 MO CHANGE

Austria (76100) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Belgium (100220) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Bulgaria (126630) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Croatia (600020489) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Cyprus (377200) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Czech Republic (218505) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Denmark (230700) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.03% A2 Aaa Aaa 0.03% A2 Aaa Aaa 0.03% A2 Aaa Aaa 0.02% A2 Aaa Aaa 0.03% A1 Aaa Aaa 0.14% A3 Aaa Aaa -11 bps +2 0 0 0.06% Baa1 Aa3 A1 0.06% Baa1 Aa2 A1 0.06% Baa1 Aa3 A1 0.06% Baa1 Aa3 A1 0.05% Baa1 Aa3 A1 0.15% A3 A1 A1 -10 bps -1 +1 0 5.08% Caa1 Ca Ba3 4.91% Caa1 Caa3 Ba3 4.93% Caa1 Caa3 Ba3 4.77% Caa1 Caa3 Ba3 3.29% Caa1 Caa3 Ba3 5.88% B3 Caa2 Baa1 -259 bps -1 -1 -5 0.58% Ba3 Ba2 Baa3 0.58% Ba3 Ba3 Baa3 0.54% Ba3 Ba2 Baa3 0.54% Ba3 Ba2 Baa3 0.40% Ba2 Ba2 Baa3 1.21% Ba2 Ba1 Baa3 -81 bps 0 -1 0 0.20% Ba1 Baa3 Baa2 0.21% Ba1 Baa2 Baa2 0.20% Ba1 Baa2 Baa2 0.18% Ba1 Baa2 Baa2 0.13% Baa3 Baa2 Baa2 0.66% Ba1 Baa3 Baa2 -53 bps +1 +1 0 0.09% Baa2 Aa1 Aa3 0.08% Baa2 Aa1 Aa3 0.08% Baa2 Aa1 Aa3 0.08% Baa2 Aa1 Aa3 0.06% Baa2 Aa1 Aa3 0.57% Ba1 A3 Aa1 -51 bps +2 +5 -2 0.05% Baa1 Aaa Aaa 0.04% A3 Aaa Aaa 0.04% A3 Aaa Aaa 0.04% A3 Aa1 Aaa 0.03% A2 Aaa Aaa 0.18% Baa1 Aaa Aaa -15 bps +2 0 0

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MOODYS CAPITAL MARKETS RESEARCH, INC. / MARKET SIGNALS SOVEREIGN RISK REPORT / MOODYS.COM

CAPITAL MARKETS RESEARCH

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12 MO CHANGE

Estonia (600046984) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Finland (278070) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating France (639500) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Germany (333700) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Greece (348330) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Hungary (381030) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Iceland (392575) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.22% Ba1 Ba1 Baa3 0.20% Ba1 Ba1 Baa3 0.21% Ba1 Ba1 Baa3 0.21% Ba1 Ba2 Baa3 0.20% Ba1 Ba2 Baa3 0.56% Ba1 Ba3 Baa3 -36 bps 0 +1 0 0.57% Ba3 B1 Ba1 0.53% Ba3 B1 Ba1 0.53% Ba3 B1 Ba1 0.51% Ba3 B1 Ba1 0.43% Ba3 B1 Ba1 1.18% Ba2 Ba1 Baa3 -75 bps -1 -3 -1 ---C ---C ---C ---C ---C 23.87% C Ca Ca ----1 0.02% Aa3 Aaa Aaa 0.02% A1 Aaa Aaa 0.02% Aa2 Aaa Aaa 0.02% Aa3 Aaa Aaa 0.02% Aa2 Aaa Aaa 0.08% Aa2 Aaa Aaa -6 bps 0 0 0 0.07% Baa2 Aaa Aaa 0.06% Baa2 Aaa Aaa 0.07% Baa2 Aaa Aaa 0.06% Baa2 Aaa Aaa 0.05% Baa1 Aaa Aaa 0.27% Baa2 Aaa Aaa -22 bps +1 0 0 0.01% Aa1 Aaa Aaa 0.01% Aa2 Aaa Aaa 0.01% Aaa Aaa Aaa 0.01% Aa1 Aaa Aaa 0.01% Aaa Aaa Aaa 0.08% Aa1 Aaa Aaa -7 bps +1 0 0 0.05% Baa1 -A1 0.05% Baa1 -A1 0.05% Baa1 -A1 0.05% Baa1 -A1 0.05% Baa1 -A1 0.17% Baa1 -A1 -12 bps 0 -0

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MOODYS CAPITAL MARKETS RESEARCH, INC. / MARKET SIGNALS SOVEREIGN RISK REPORT / MOODYS.COM

CAPITAL MARKETS RESEARCH

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12 MO CHANGE

Ireland (423933) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Italy (423690) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Latvia (600016806) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Lithuania (600018187) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Malta (600012947) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Netherlands (543005) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Norway (565700) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.01% Aaa -Aaa 0.01% Aaa -Aaa 0.01% Aaa -Aaa 0.01% Aaa -Aaa 0.01% Aaa -Aaa 0.05% Aaa -Aaa -4 bps 0 -0 0.02% A2 Aaa Aaa 0.02% A2 Aaa Aaa 0.03% A2 Aaa Aaa 0.03% A2 Aaa Aaa 0.02% A1 Aaa Aaa 0.09% Aa2 Aaa Aaa -7 bps -2 0 0 0.39% Ba2 Baa3 A3 0.39% Ba2 Baa3 A3 0.35% Ba2 Baa3 A3 0.38% Ba2 Baa3 A3 0.27% Ba1 Baa3 A3 0.88% Ba1 A3 A2 -61 bps 0 -3 -1 0.12% Baa3 Baa2 Baa1 0.12% Baa3 Baa2 Baa1 0.11% Baa3 Baa2 Baa1 0.12% Baa3 Baa2 Baa1 0.09% Baa3 Baa2 Baa1 0.48% Ba1 Baa2 Baa1 -39 bps +1 0 0 0.15% Baa3 Baa2 Baa3 0.14% Baa3 Baa2 Baa3 0.15% Baa3 Baa2 Baa3 0.14% Baa3 Baa2 Baa3 0.12% Baa3 Baa1 Baa3 0.48% Baa3 Baa2 Baa3 -36 bps 0 +1 0 0.55% Ba3 Ba2 Baa2 0.48% Ba3 Ba1 Baa2 0.52% Ba3 Ba1 Baa2 0.57% Ba3 Ba1 Baa2 0.25% Ba2 Baa3 Baa2 1.41% Ba2 Baa3 Aa2 -116 bps 0 0 -6 0.51% Ba3 Ba2 Ba1 0.46% Ba3 Ba2 Ba1 0.44% Ba3 Ba2 Ba1 0.44% Ba3 Ba2 Ba1 0.26% Ba2 Ba1 Ba1 4.18% B3 B1 Ba1 -392 bps +4 +3 0

10 SEPTEMBER 2012

MOODYS CAPITAL MARKETS RESEARCH, INC. / MARKET SIGNALS SOVEREIGN RISK REPORT / MOODYS.COM

CAPITAL MARKETS RESEARCH

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Poland (613900) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Portugal (614650) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Romania (651437) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Russian Federation (600018921) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Serbia (600035271) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Slovakia (600011880) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Slovenia (600019535) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.62% B1 B1 Baa2 0.71% B1 B1 Baa2 0.66% B1 Ba3 Baa2 0.64% B1 Ba3 Baa2 0.45% Ba3 Ba2 Baa2 0.30% Baa2 Baa2 Aa2 +15 bps -4 -3 -6 0.11% Baa3 A3 A2 0.11% Baa3 A3 A2 0.11% Baa3 A3 A2 0.11% Baa3 A3 A2 0.08% Baa2 A3 A2 0.24% Baa2 Baa1 A1 -16 bps 0 +1 -1 0.73% ---0.72% ---0.72% ---0.70% ---0.66% ---0.76% ----10 bps ---0.10% Baa2 Baa2 Baa1 0.11% Baa3 Baa2 Baa1 0.09% Baa2 Baa1 Baa1 0.10% Baa2 Baa1 Baa1 0.07% Baa2 Baa1 Baa1 0.37% Baa3 Baa2 Baa1 -30 bps +1 +1 0 0.47% Ba2 Ba2 Baa3 0.46% Ba3 Ba2 Baa3 0.44% Ba2 Ba2 Baa3 0.44% Ba2 Ba2 Baa3 0.37% Ba2 Ba1 Baa3 0.80% Ba1 Ba1 Baa3 -43 bps -1 0 0 1.57% B3 B2 Ba3 1.31% B3 B2 Ba3 1.19% B2 B2 Ba3 1.04% B2 B2 Ba3 0.65% B2 Ba3 Ba3 6.18% Caa1 Caa2 Ba2 -553 bps +2 +5 -1 0.09% Baa2 A3 A2 0.10% Baa2 A3 A2 0.09% Baa2 A3 A2 0.09% Baa2 A3 A2 0.07% Baa2 A3 A2 0.43% Baa3 Baa1 A2 -36 bps +1 +1 0

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CAPITAL MARKETS RESEARCH

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12 MO CHANGE

Spain (704550) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Sweden (730900) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Switzerland (731810) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Ukraine (600037040) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating United Kingdom (788250) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.02% Aa2 Aaa Aaa 0.02% A1 Aaa Aaa 0.02% Aa1 Aaa Aaa 0.02% Aa2 Aaa Aaa 0.01% Aa1 Aaa Aaa 0.08% Aa1 Aaa Aaa -7 bps 0 0 0 1.97% B3 Caa1 B2 1.90% B3 Caa1 B2 1.89% B3 Caa1 B2 1.77% B3 Caa1 B2 1.50% B3 Caa1 B2 1.93% B1 Ba3 B2 -43 bps -2 -4 0 0.02% Aa1 Aaa Aaa 0.02% Aa3 Aaa Aaa 0.02% Aa1 Aaa Aaa 0.02% Aa1 Aaa Aaa 0.02% Aa2 Aaa Aaa 0.07% Aa1 Aaa Aaa -5 bps -1 0 0 0.01% Aaa Aaa Aaa 0.01% Aa2 Aaa Aaa 0.01% Aaa Aaa Aaa 0.01% Aaa Aaa Aaa 0.01% Aaa Aaa Aaa 0.06% Aaa Aaa Aaa -5 bps 0 0 0 0.72% B1 Ba3 Baa3 0.62% B1 Ba2 Baa3 0.63% B1 Ba2 Baa3 0.70% B1 Ba3 Baa3 0.31% Ba2 Ba1 Baa3 1.13% Ba2 Baa3 Aa2 -82 bps 0 -1 -7

Latin America & Caribbean

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Argentina (61720) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 3.58% Caa1 -B3 3.17% Caa1 -B3 3.73% Caa1 -B3 3.68% Caa1 -B3 3.01% Caa1 -B3 3.80% B2 -B3 -79 bps -2 -0

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MOODYS CAPITAL MARKETS RESEARCH, INC. / MARKET SIGNALS SOVEREIGN RISK REPORT / MOODYS.COM

CAPITAL MARKETS RESEARCH

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YEAR AGO

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Barbados (849700) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Brazil (114650) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Chile (171693) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Colombia (186200) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Costa Rica (600023791) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Dominican Republic (600045733) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating El Salvador (600045734) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.59% Ba3 Ba2 Ba2 0.56% Ba3 Ba2 Ba2 0.56% Ba3 Ba2 Ba2 0.56% Ba3 Ba2 Ba2 0.54% Ba3 Ba1 Ba2 1.15% Ba2 Ba1 Ba2 -61 bps -1 0 0 0.60% Ba3 -B1 0.57% Ba3 -B1 0.51% Ba3 -B1 0.50% Ba3 -B1 0.50% Ba3 -B1 1.27% Ba3 -B1 -77 bps 0 -0 0.17% Baa3 Ba2 Baa3 0.17% Ba1 Ba1 Baa3 0.27% Ba1 Ba1 Baa3 0.27% Ba1 Ba1 Baa3 0.16% Ba1 Ba1 Baa3 0.36% Baa3 Baa3 Baa3 -20 bps -1 -1 0 0.06% -A3 Baa3 0.06% -A3 Baa3 0.06% -A3 Baa3 0.06% -A3 Baa3 0.05% -A3 Baa3 0.25% -Baa2 Baa3 -20 bps -+2 0 0.05% A3 Aa3 Aa3 0.05% A3 Aa2 Aa3 0.05% A3 Aa3 Aa3 0.05% A3 Aa3 Aa3 0.04% A3 Aa2 Aa3 0.13% A3 A2 Aa3 -9 bps 0 +3 0 0.07% Baa1 A3 Baa2 0.07% Baa2 A3 Baa2 0.07% Baa1 A3 Baa2 0.07% Baa2 A3 Baa2 0.06% Baa1 A3 Baa2 0.25% Baa2 A3 Baa2 -19 bps +1 0 0 0.10% -B1 Baa3 0.09% -B1 Baa3 --Ba3 Baa3 --B1 Baa3 --B1 Baa3 0.38% -Ba2 Baa3 ---2 0

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CAPITAL MARKETS RESEARCH

10-AUGUST-12

17-AUGUST-12

24-AUGUST-12

31-AUGUST-12

07-SEPTEMBER-12

YEAR AGO

12 MO CHANGE

Guatemala (600011455) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Jamaica (600036085) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Mexico (489500) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Panama (591640) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Peru (601500) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Trinidad and Tobago (3055) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Uruguay (15210) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.09% Baa2 Baa1 Baa3 0.09% Baa2 Baa1 Baa3 0.09% Baa2 Baa1 Baa3 0.09% Baa2 Baa1 Baa3 0.08% Baa2 Baa1 Baa3 0.37% Baa3 Baa2 Ba1 -29 bps +1 +1 +1 0.07% Baa1 Baa2 Baa1 0.07% Baa1 Baa2 Baa1 0.07% Baa1 Baa2 Baa1 0.07% Baa1 Baa3 Baa1 0.07% Baa1 Baa3 Baa1 0.14% A3 Baa3 Baa1 -7 bps -1 0 0 0.07% Baa1 A3 Baa3 0.07% Baa1 A3 Baa2 0.07% Baa1 A3 Baa2 0.07% Baa1 A3 Baa2 0.06% Baa1 A3 Baa2 0.26% Baa2 Baa1 Baa3 -20 bps +1 +1 +1 0.06% Baa1 Baa1 Baa3 0.06% Baa1 A3 Baa3 0.06% Baa1 A3 Baa3 0.06% Baa1 A3 Baa3 0.05% Baa1 A3 Baa3 0.23% Baa2 Baa1 Baa3 -18 bps +1 +1 0 0.06% Baa1 A3 Baa1 0.06% Baa1 A3 Baa1 0.06% Baa1 A3 Baa1 0.06% Baa1 A3 Baa1 0.05% Baa1 Baa1 Baa1 0.24% Baa2 Baa1 Baa1 -19 bps +1 0 0 1.39% B2 B2 B3 1.34% B3 B1 B3 1.36% B2 B2 B3 1.34% B3 B3 B3 1.34% B3 B3 B3 2.15% B1 B1 B3 -81 bps -2 -2 0 0.13% Baa3 Baa3 Ba1 0.12% Baa3 Baa3 Ba1 0.12% Baa3 Baa3 Ba1 0.12% Baa3 Baa3 Ba1 0.11% Baa3 Baa3 Ba1 0.32% Baa3 Baa3 Ba1 -21 bps 0 0 0

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CAPITAL MARKETS RESEARCH

10-AUGUST-12

17-AUGUST-12

24-AUGUST-12

31-AUGUST-12

07-SEPTEMBER-12

YEAR AGO

12 MO CHANGE

Venezuela (800876) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 2.54% B3 Caa2 B2 2.07% B3 Caa2 B2 2.00% B3 Caa2 B2 1.88% B3 Caa1 B2 1.52% B3 Caa1 B2 6.43% Caa1 Caa3 B2 -491 bps +1 +2 0

Middle East & Africa

10-AUGUST-12 17-AUGUST-12 24-AUGUST-12 31-AUGUST-12 07-SEPTEMBER-12 YEAR AGO 12 MO CHANGE

Angola (806356845) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Bahrain (600018600) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Egypt (258330) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Ghana (600022862) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Iraq (600018912) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.35% ---0.70% ---0.65% ---0.62% ---0.57% ---0.75% ----18 bps ---0.67% ---0.60% ---0.69% ---0.68% ---0.65% ---0.99% ----34 bps ---0.93% B2 Ba3 B2 0.85% B2 Ba3 B2 0.69% B1 Ba2 B2 0.66% B1 Ba2 B2 0.55% B1 Ba2 B2 0.98% Ba2 Ba1 Ba3 -43 bps -2 -1 -2 0.24% Ba1 -Baa1 0.29% Ba2 -Baa1 0.27% Ba1 -Baa1 0.26% Ba1 -Baa1 0.24% Ba1 -Baa1 0.69% Ba1 -Baa1 -45 bps 0 -0 1.12% --Ba3 1.07% --Ba3 1.07% --Ba3 1.05% --Ba3 1.07% --Ba3 1.32% --Ba3 -25 bps --0

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CAPITAL MARKETS RESEARCH

10-AUGUST-12

17-AUGUST-12

24-AUGUST-12

31-AUGUST-12

07-SEPTEMBER-12

YEAR AGO

12 MO CHANGE

Israel (423305) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Jordan (600018522) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Kazakhstan (600021080) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Lebanon (600014506) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Morocco (600020405) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Nigeria (551435) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Oman (96600) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.20% Ba1 -A1 0.19% Ba1 -A1 0.15% Baa3 -A1 0.14% Baa3 -A1 0.16% Ba1 -A1 0.35% Baa3 -A1 -19 bps -1 -0 0.56% ---0.53% ---0.51% ---0.50% ---0.51% ---0.72% ----21 bps ---0.19% Baa3 Baa3 Ba1 0.20% Ba1 Baa3 Ba1 0.17% Baa3 Baa3 Ba1 0.17% Baa3 Baa3 Ba1 0.17% Ba1 Baa3 Ba1 0.32% Baa3 Baa3 Ba1 -15 bps -1 0 0 0.70% B1 Ba2 B1 0.78% B2 B1 B1 0.80% B2 B1 B1 0.76% B1 B1 B1 0.73% B2 B1 B1 0.92% Ba2 Ba1 B1 -19 bps -3 -3 0 0.13% Baa3 -Baa2 0.14% Baa3 -Baa2 0.12% Baa3 -Baa2 0.12% Baa3 -Baa2 0.09% Baa3 -Baa2 0.40% Baa3 -Baa2 -31 bps 0 -0 0.41% Ba2 Ba2 Ba2 0.39% Ba2 Ba3 Ba2 0.22% Ba1 Ba3 Ba2 0.21% -Ba3 Ba2 0.22% -Ba3 Ba2 0.81% -Ba1 Ba2 -59 bps --2 0 0.08% Baa2 Baa1 A1 0.11% Baa3 Baa1 A1 0.10% Baa2 Baa1 A1 0.10% Baa2 Baa1 A1 0.09% Baa2 Baa1 A1 0.27% Baa2 A3 A1 -18 bps 0 -1 0

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CAPITAL MARKETS RESEARCH

10-AUGUST-12

17-AUGUST-12

24-AUGUST-12

31-AUGUST-12

07-SEPTEMBER-12

YEAR AGO

12 MO CHANGE

Pakistan (600014774) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Qatar (600048045) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Saudi Arabia (660260) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating South Africa (686830) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Tunisia (600046595) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating Turkey (768337) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating United Arab Emirates (600018601) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.09% --Aa2 0.09% --Aa2 0.09% --Aa2 0.09% --Aa2 0.09% --Aa2 0.19% Baa2 -Aa2 -10 bps --0 0.12% Baa3 Baa3 Ba1 0.12% Baa3 Baa3 Ba1 0.11% Baa3 Baa2 Ba1 0.11% Baa3 Baa2 Ba1 0.09% Baa2 Baa2 Ba1 0.42% Baa3 Baa3 Ba2 -33 bps +1 +1 +1 0.23% Ba1 -Baa3 0.23% Ba1 -Baa3 0.24% Ba1 -Baa3 0.23% Ba1 -Baa3 0.26% Ba1 -Baa3 0.31% Baa3 -Baa3 -5 bps -1 -0 0.07% Baa1 A3 A3 0.08% Baa2 Baa1 A3 0.08% Baa2 Baa1 A3 0.09% Baa2 Baa1 A3 0.07% Baa2 Baa1 A3 0.26% Baa2 Baa1 A3 -19 bps 0 0 0 0.05% Baa1 -Aa3 0.06% Baa1 -Aa3 0.06% Baa1 -Aa3 0.05% A3 -Aa3 0.05% A3 -Aa3 0.13% A3 -Aa3 -8 bps 0 -0 0.06% Baa1 Baa1 Aa2 0.07% Baa1 Baa1 Aa2 0.06% Baa1 Baa1 Aa2 0.06% Baa1 Baa1 Aa2 0.05% Baa1 Baa1 Aa2 0.13% A2 Baa1 Aa2 -8 bps -2 0 0 2.55% B3 Caa2 Caa1 2.24% B3 Caa2 Caa1 2.16% B3 Caa2 Caa1 2.44% B3 Caa2 Caa1 2.16% B3 Caa2 Caa1 4.17% B3 Caa2 B3 -201 bps 0 0 -1

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CAPITAL MARKETS RESEARCH

North America
10-AUGUST-12 17-AUGUST-12 24-AUGUST-12 31-AUGUST-12 07-SEPTEMBER-12 YEAR AGO 12 MO CHANGE

Canada (137160) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating United States of America (790575) CDS Implied-EDF (1-Year) CDS Implied-Rating Bond Implied-Rating Senior Rating 0.01% Aaa Aaa Aaa 0.01% Aaa Aaa Aaa 0.01% Aaa Aaa Aaa 0.01% Aaa Aaa Aaa 0.01% Aaa Aaa Aaa 0.05% Aaa Aaa Aaa -4 bps 0 0 0 --Aaa Aaa 0.02% Aa2 Aaa Aaa 0.02% Aaa Aaa Aaa 0.01% Aaa Aaa Aaa 0.01% Aaa Aaa Aaa 0.06% Aaa Aaa Aaa -5 bps 0 0 0

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CAPITAL MARKETS RESEARCH

Report Number: 145373

Authors Jerry H. Tempelman, CFA Yukyung Choi Editor Dana Gordon

1.212.553.1434 Jerry.Tempelman@moodys.com 1.212.553.0906 Yukyung.Choi@moodys.com 1.212.553.0398 Dana.Gordon@moodys.com

Contact Us Americas : Europe: Asia:

1.212.553.4399 +44 (0) 20.7772.5588 813.5408.4131

Copyright 2012, Moodys Capital Markets Research, Inc., and/or its licensors and affiliates (together, "MOODY'S). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODYS PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODYS from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided as is without warranty of any kind and MOODYS, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. 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The statements contained in this research report are based solely upon the opinions of Moodys Capital Markets Research, Inc. and the data and information available to the authors at the time of publication of this report. There is no assurance that any predicted results will actually occur. Past performance is no guarantee of future results. The analysis in this report has not been made available to any issuer prior to publication. When making an investment decision, investors should use additional sources of information and consult with their investment advisor. Investing in securities involves certain risks including possible fluctuations in investment return and loss of principal. Investing in bonds presents additional risks, including changes in interest rates and credit risk. All Capital Markets Research Group information is provided by Moody's Capital Markets Research, Inc., a subsidiary of Moodys Corporation. 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