Revealed: The 10 riskiest sovereign credits in Q1

Greece has fallen out of a list of the top ten riskiest sovereign credits after restructuring its debt, but a number of other sovereigns are still at risk, new research has revealed.

Findings from credit information specialist CMA, covering the first quarter of the year to 29 March, shows Cyprus is now the most risky sovereign credit in the world, with the highest probability of default.

Cyprus, a new entry in the rankings, has replaced Greece which is no longer on the list following its debt restructure, while Portugal remains in second place.

Spain is a new entry in tenth place on the list, following renewed fears the country will need a bailout from the IMF and its eurozone neighbours. This week the yields on its 10-year bonds have jumped above 6% for the first time this year.

The country has seen spreads on its debt widen by 431 basis points over the quarter, taking it to the top of the worst quarterly performance table.

Pakistan, Argentina, Ukraine and Venezuela also feature in the top ten, along with Hungary, Egypt and Ireland.

CMA creates the top ten by estimating the cumulative probability of default (CPD) for each sovereign issuer over five years. For sovereign CDS, this typically includes the probability of a debt restructure.

CMA calculates Cyprus has a 63.7% chance of being unable to honour its debts within the next five years, while Portugal’s CPD is 60.5%.

Ireland’s CPD figure is 39.5%, while Spain’s percentage chance of default is 32.1%.

Conversely, Norway tops the list of the ten safest sovereign credits, with just a 2% chance of default on a five-year view.

The US remains in second place with a 2.7% probability – despite being downgraded from AAA by ratings agencies – followed by Switzerland, Sweden and Hong Kong.

The UK’s position has improved in the last three months according to CMA, up three places with a 5.6% CPD, ahead of Germany which remains in tenth place with a 6.4% default risk.

Australia, Chile and Finland complete the top ten.

CMA said Q1 was a good quarter for the world’s least risky sovereign nations, as they began to revert back to levels seen prior to the eurozone debt crisis, while the UK in particular saw spreads on its debt tighten by 40% over the three months.


Top 10 most risky sovereign credits

Position Q1Country 5-year CPD (%) Previous ranking
 1 Cyprus 63.7 New entry
 2 Portugal 60.5 2 (no change)
 3 Pakistan 46.4 3 (no change)
 4 Argentina 45.9 5 (down 1)
 5 Ukraine 45.6 7 (down 2)
 6 Venezuela 41.5 4 (up 2)
 7 Ireland 39.5 6 (up 1)
 8 Egypt 32.8 8 (no change)
 9 Hungary 32.2 9 (no change)
 10 Spain 32.1 New entry

 Top 10 least risky sovereign credits

Position Q1Country 5-year CPD (%)Previous ranking
 1 Norway 2 1 (no change)
 2 US 2.7 2 (no change)
 3 Switzerland 3.6 3 (no change)
 4 Sweden 3.8 4 (no change)
 5 Hong Kong 5.4 7 (up 2)
 6 UK 5.6 9 (up 3)
 7 Finland 5.7 5 (down 2)
 8 Australia 6.2 New entry
 9 Chile 6.3 New entry
 10 Germany 6.410 (no change)

All data for the three months to 29 March except Cyprus which is to 16 March. Cumulative probability of default (CPD) is a function of the recovery level which varies according to several factors and distance to default.

Source: CMA


This article was first published on Investment Week

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