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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: US & UK, W estern 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
S&P Capital IQ CDS (formerly CMA Datavision), which provides independent CDS prices intraday and end-ofday based on data collected from S&P Capital IQ’s consortium of CDS buy-side firms. S&P Capital IQ CDS
specialises in consensus-based pricing for over-the-counter credit instruments, including 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, and Par spreads are
used as they can be computed consistently across all credits allowing for cross comparison.
Where CDS data for the Sovereign is not available a majority state owned national bank “Proxy” is used to
derive CDS and consequently the CPD of the country. This is the case for India, for which data for the “State
Bank of India” is used, and for Tunisia, for which the “Banque Centrale de Tunisie” is used.
Unless otherwise stated, data is as of the 28 th June 2013 close. Record highs are determined by using closing
values and do not factor in intraday highs.
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 S&P Capital IQ CDS and is based on the price of the
CDS and recovery assumption.
Reference to ‘risky’ in this report is in terms of the CPD. The CPD number may also include an element of
devaluation risk as the standard currency for Sovereign CDS is not the domicile currency.
S&P Capital IQ CDS 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 S&P Capital IQ CDS or via our strategic channel
partners www.cmavision.com/partners/.
For more information about how S&P Capital IQ CDS can help you effectively monitor and manage your credit
exposures please contact us at [email protected]
 None
 Greece re-enters the report as CDS pricing becomes available following an absence of nearly a year
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%.
Q2 2013 was an eventful and volatile quarter with civil unrest in Brazil and Turkey, continued unrest
in Egypt and political tensions in Portugal. However, these events were eclipsed by the news that the
anticipated prospect of tapering (a reduction in the monthly bond buying program), announced by
the US Fed on May 22nd, could become a reality. The news prompted the start of a near doubling of
interest rates and precipitated a selloff in High Yield and Latin America/Asian Emerging market
Bonds and Stocks and a widening of CDS levels.




Argentina remains the most risky sovereign globally despite it tightening 23% over the
quarter.
Venezuela slips one place to be the 3rd most risky.
Portugal’s spreads managed to finish the quarter 4% tighter, even though the coalition
government was on the verge of collapse as recession, high unemployment and a widening
budget deficit, prompted the finance minister to resign. Spreads however, have continued to
widen in Q3.
Greece Credit Default Swaps start trading again, closing the quarter at 18.7%+100 running
and 3.5% Bid/Ask Spread, as it tries to secure a deal to lay off state workers (‘Troika’).
Note: Data for Greece from 17th May.



No change in the top three least risky sovereign credits which all end the quarter at 2-3bps
tighter.
The US climbs up a position as spreads tighten to 27bps from 37bps - the best performer in
the quarter.
The UK and Czech Republic enter the top 10 as CDS spreads in Australia and NZ widen above
50bps, losing them their positions in the top 10 least risky table.



The cost of protection in the US tightened 27bps as unemployment drops to 7.6%, ever
closer to the FED target of 7%.
CDS Spreads in Argentina traded in a band of 2000bps as a prospect of a default continues
and the second largest country in the region files a petition with the US Supreme court.
Hungary tightens to 317bps, escaping the volatile widening of spreads in Emerging market
economies.



CDS levels in China widen to 118bps as the growth rate slows and approaches 7.5%, topping
the largest percentage widener table.
Latin America suffered its worst quarterly performance for some time, as rising interest rates
and a slowing of growth in China sees a remarkable sell off in the region.
Spreads in Peru touched 175bps before settling back to 144bps at quarter end, with 10bps
due to the roll from the June to Sep 5Y contract.

US CDS spreads tightened considerably, and US fiscal policy seems to be working, as the
world’s largest economy enjoys an improving employment rate, higher stock prices and a
general bullish outlook from top CEOs. This prompted the U.S. Fed to review its $85bn
monthly buyback program and to consider to taper i.e. gradually reduce the repurchase
program over time. This started a selloff of US bonds, wider swap rates (almost doubling),
lower stock prices and a general selloff in emerging market debt, mainly in Latin America,
Africa and Asia, excluding Japan.

CDS spreads in the UK remained fairly stable over Q2, closing the quarter at 50bps as it
braces itself for a new Governor of the Bank of England, Canadian born Mark Carney.



Western Europe tightened 10% overall in the quarter, as positive economic data in Italy and
Spain saw spreads tighten in these two important economies in Europe.
The Portuguese government tenure could be cut short as worsening economic data prompt
calls for an early election. CDS Spreads end the quarter at 392bps.
Spreads in Switzerland tighten to 30bps as liquidity continues to improve in CDS.


Spreads in Ukraine and Russia widen 37% and 20% respectively. Russia/Gazprom OAO Basis
peaks to 100bps towards the end of June.
Hungary and Romania buck the trend and tighten 18% and 14% respectively.


The Nordic region continues to be the safe haven place to be in terms of CDS, as spreads
tightened 11% overall in the region.
Iceland spreads remain virtually unchanged, settling around 160bps.





CDS Spreads in the region widened 18% as emerging markets assets sell off in the quarter.
Iraq bucks the trend remaining unchanged on the quarter as International banks start to
expand into the region and the country boosts oil exports and rebuilds its economy.
CDS Spreads in Turkey peak at 240bps as anti-government protests in Taksim square
gathered momentum in June.
Morsi’s tenure as the leader of Egypt came to an abrupt end following civil unrest and a
military leadership once again takes control. Bid/Ask spreads widen 50bps and the cost of
protection widens to 900bps.
Israel remains stable widening only 2bps on the quarter as the economy remains strong
driven by hi-technology and chemical industries.
Note: Banque Centrale de Tunisie is used as proxy.



CDS Spreads in Asia, excluding Japan, widen 23% as China growth slows prompting concern
over the growth of other Asian emerging countries.
India, Indonesia, Malaysia and Kazakhstan see the cost of debt protection widen over 25%.
Japan remains stable at 77bps in a volatile quarter for the currency and the stock market but
not the CDS market.
Note: State Bank of India is used as a proxy.


CDS Spreads in Australia and New Zealand spiked mid-June touching 70bps.
The prospects of slower growth in Australia prompted the Reserve Bank of Australia to keep
rates lower, weakening the Australian Dollar FX rates, resulting in CDS Spreads pulling back
to the Mid-50’s.


Central & South America, excluding Argentina, widened a dramatic 45% on average in what
must have been a painful quarter for investors in the region.
Following a near decade of growth and prosperity the government of Brazil, led by Dilma
Rousseff, faced its toughest test for some time as more than a million people participated in
protests. CDS Spreads approach 200bps a support level seen three times before since 2004.
(See chart on next page).
We can look at the month of June in two stages when reviewing the daily spread performance of the
S&P/ISDA 100 CDS OTR Index throughout the month. Credit spreads remained within a range
through the first half of the month, widening slightly until the 12 th, at which point the index
tightened for three days. The tightening was in response to economic numbers that pointed to
inflation remaining low and the economy being stable. The University of Michigan Consumer
Confidence came in lower (82.7) compared to the surveyed number (84.5), and month-over-month
CPI was also lower than expected at 0.1%.
The second stage of June began on the 19th with the press announcement following the FOMC
meeting. Fed Chairman Bernanke’s speech about the stronger economic improvement to come and
questions about the timeline for pulling back on economic stimulus led to dramatic selling in fixed
income and equity markets. The S&P/ISDA U.S. 150 Credit Spread Index widened from 69bps to
71bps on the day of the FOMC announcement followed by continued widening on the 20 th (80bps).
This index reached a peak spread of 85bps on the 24th, but since then has tightened slightly as the
market has returned to behaving in a more orderly fashion. The question is how long does the new
normal last? U.S. unemployment numbers are due out on July 5th. Whether this will be a volatile
summer is yet to be seen. The Fed’s pending actions and events in markets such as Europe or China
could make the next few months interesting.
Exhibit 1: Spread History for the S&P/ISDA U.S. 150 Credit Spread Index versus the S&P 500 Price
Return
S&P/ISDA U.S. 150 Credit Spread Index (bps)
S&P 500 (Price Return)
100
1700
90
1650
80
1600
70
1550
60
1500
50
1450
40
30
31/12/2012
1400
31/01/2013 28/02/2013
31/03/2013
30/04/2013
31/05/2013
Source: S&P Dow Jones Indices LLC and/or its affiliates, Data as of June 30, 2013. Index performance is based on spread
movement. Charts and graphs are provided for illustrative purposes. Past performance is no guarantee of future results.
All rating sector indices were wider in June. The largest mover was the lower-credit S&P/ISDA CDS
U.S. High Yield B and Below Index whose spread change of 36 bps widened the index level for the
month from 363bps to 399bps. The S&P/ISDA CDS U.S. High Yield BB Index followed suit, but
widened by just 28bps. At a spread of 358 YTD, the overall S&P/ISDA CDS U.S. High Yield Index is still
79bps tighter than the 437bps level at which it began the year.
Investment-grade CDS, as measured by the S&P/ISDA CDS U.S. Investment Grade Index, widened
on the month (+7.5bps), but is tame in comparison to high-yield CDS. Year-to-date, spreads on the
three indices (Investment Grade, Investment Grade A & Above and Investment Grade BBB) are all
about 20bps tighter than they were at the beginning of the year.
All industry sector indices were also wider in June, with only the S&P/ISDA CDS U.S. Healthcare
Select 10 Index’s spread widening remaining below double digits at 6.8bps. The S&P/ISDA CDS U.S.
Homebuilders Select 10 Index widened the most (32bps) closely followed by the S&P/ISDA CDS U.S.
Energy Select 10 Index, which widened 30bps.
The S&P/ISDA CDS U.S. Financials Select 10 and S&P/ISDA CDS European Banks Select 15
experienced roughly the same degree of widening as the two indices’ spreads moved by 22 and
20bps respectively. The S&P/ISDA CDS U.S. Financials Select 10’s spread is still 10bps tighter than its
spread of 116bps at the beginning of the year. However, the S&P/ISDA CDS European Banks Select
15’s spread is now 35bps wider on the year at 208bps compared to its 173 spread at the beginning
of the year.
Exhibit 3: S&P/ISDA CDS U.S. Sector Historical Spreads
300
250
200
Weighted
150
Av g Spread
100
50
0
Home Builders
Consumer Discretionary
Consumer Staples
Energy
Healthcare
Financials
Source: S&P Dow Jones Indices. Data as of June 30, 2013. Charts are provided for illust rative purposes. This chart may
reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more
information regarding the inherent limitations associated with back-tested performance.
Exhibit 4: Daily Equalized Sector Spread Performance
140
135
Home
Builders
130
125
Consumer
Discretionary
120
Consumer
Staples
115
Weighted
Av g.
Spread110
Energy
105
Healthcare
The average spread
widening between the
19th and the 20th was 18
bps. Spread movement
ranged from
Homebuilders’ +31bps to
Healthcare’s +8bps.
Once the dust settled,
spreads improved going
into the end of the
month.
100
Financials
95
90
Source: S&P Dow Jones Indices. Data as of June 30, 2013. Charts are provided for illustrative purposes. This chart may
reflect hypothetical historical performance. Please see the Performance Disclosure at the end o f this document for more
information regarding the inherent limitations associated with back-tested performance.
Exhibit 5: Homebuilders Performance Comparison
260
4,000
3,500
240
3,000
220
2,500
200
2,000
1,500
180
1,000
160
500
140
0
Jun
Jul
Aug
Sep
Oct
Nov Dec
Jan
Feb
Mar
Apr
May
S&P/ISDA CDS U.S. Homebuilders Select 10 Index (bps)
The S&P/ISDA CDS U.S.
Homebuilders Select 10
Index started the month
with a spread of 172bps and
continued to widen,
reaching a peak of 232bps
before ending the month at
204bps.
The S&P Homebuilders
Select Industry Index’s total
return was
-4.59% for
the month.
S&P Homebuilders Select Industry Index (TR)
Source: S&P Dow Jones Indices. Data as of June 30, 2013. Charts are provided for illustrat ive purposes. This chart may
reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more
information regarding the inherent limitations associated with back-tested performance.
Exhibit 6: Performance of the CDS Financial Sector Indices
220
400
200
350
180
300
160
250
140
200
120
150
100
100
80
50
60
6/29 7/29 8/29 9/29 10/29 11/2912/29 1/29 2/28 3/31 4/30 5/31
0
S&P/ISDA U.S. Financial 30 Credit Spread (bps)
S&P/ISDA CDS Financials Select 10 (bps)
S&P/ISDA CDS Euro Banks Select 15 (bps-right scale)
The S&P/ISDA U.S. Financial 30
Credit Spread widened by 12 bps
while the S&P/ISDA CDS Financials
Select 10 widened by 22bps in
June.
S&P/ISDA CDS European Banks
Select 15 widened by 21bps after
the FOMC meeting (June 20th). A
week later, the index recovered so
that month-to-date the S&P/ISDA
CDS Euro Banks Select 15 was
20bps wider, which was in line with
the widening of the S&P/ISDA CDS
Financials Select 10.
Source: S&P Dow Jones Indices. Data as of June 30, 2013. Charts are provided for illustrative purposes. This chart may
reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more
information regarding the inherent limitations associated with back-tested performance.
With all the movement in the U.S. CDS markets, the widening of the S&P/ISDA Eurozone Developed
Nation Sovereign CDS and S&P/ISDA International Developed Nation Sovereign CDS indices’
spreads by 11bps and 7bps seems tame. Year-to-date, both these indices’ spreads are tighter,
though not by much.
Exhibit 7: Spread Comparison of Eurozone and International Developed Nation Sovereign CDS
Indices
The S&P/ISDA Eurozone
Developed Nation Sovereign
CDS Index widened by 11 bps
while the S&P/ISDA
International Developed
Nation Sovereign CDS Index,
which contains a broader
selection of countries, widened
by 7bps.
300
250
Spread
(bps)
200
150
100
50
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
S&P/ISDA Eurozone Developed Nation Sovereign CDS Index
(SPCDKR50)
S&P/ISDA International Developed Nation Sovereign CDS Index
(SPCDMR50)
Source: S&P Dow Jones Indices. Data as of June 30, 2013. Charts are provided for illustrative purposes. This chart may
reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for mo re
information regarding the inherent limitations associated with back-tested performance.
Exhibit 2: S&P/ISDA CDS Index Data as June 30, 2013
Credit Spread CDS Indices
Ticker
Weighted Average Market Spread as
of
Prev
Prev
Prev
MonthMonthQtrYrEnd
End
End
End
Spread Change
(%)
MTD
QTD
S&P/ISDA 100 CDS
SPCDXR50
55
48
57
63
14.5
-3.4
S&P/ISDA U.S. 150 Credit Spread
SPCD5R50
79
69
82
92
15.0
-3.3
SPCD2R50
73
62
76
83
16.2
-4.7
SPCD3R50
107
96
108
129
12.0
-0.5
S&P/ISDA U.S. Corporate 120
Credit Spread
S&P/ISDA U.S. Financial 30 Credit
Spread
Rating Sector CDS Indices
S&P/ISDA CDS U.S. Inv estment
Grade
S&P/ISDA CDS U.S. Inv estment
Grade A and Abov e
S&P/ISDA CDS U.S. Inv estment
Grade BBB
Ticker
Weighted Average Market Spread as
of
Prev
Prev
Prev
MonthMonthQtrYrEnd
End
End
End
MTD
QTD
81
74
91
100
10.2
-10.8
SPCDCR50
46
41
50
66
12.6
-9.0
SPCDAR50
93
84
104
113
9.9
-11.1
S&P/ISDA CDS U.S. High Yield
SPCDYR50
358
325
375
437
10.1
-4.4
S&P/ISDA CDS U.S. High Yield BB
SPCDBR50
281
254
288
314
10.9
-2.4
S&P/ISDA CDS U.S. High Yield B
and Below
SPCDWR50
399
363
421
501
9.8
-5.2
Industry Sector CDS Indices
S&P/ISDA CDS U.S. Homebuilders
Select 10
S&P/ISDA CDS U.S. Consumer
Discretionary Select 20
S&P/ISDA CDS U.S. Consumer
Staples Select 10
S&P/ISDA CDS U.S. Energy Select
10
S&P/ISDA CDS U.S. Healthcare
Select 10
S&P/ISDA CDS U.S. Financials
Select 10
S&P/ISDA CDS European Banks
Select 15
Sovereign CDS Indices
S&P/ISDA Eurozone Dev eloped
Nation Sov ereign CDS
S&P/ISDA International Dev eloped
Nation Sov ereign CDS
Ticker
11.9
14.0
13.0
16.5
Spread Change
(%)
SPCDZR50
Weighted Average Market Spread as
of
Prev
Prev
Prev
MonthMonthQtrYrEnd
End
End
End
YTD
YTD
18.8
30.4
17.5
18.1
10.3
20.4
Spread Change
(%)
MTD
QTD
YTD
SPCDVR50
204
172
185
200
18.6
10.6
2.1
SPCDUR50
204
188
225
247
8.5
-9.3
SPCDRR50
119
109
136
156
9.7
-12.2
17.5
23.4
SPCDQR50
196
166
191
216
18.3
2.5
-9.3
SPCDPR50
61
54
65
67
12.6
-7.0
10.1
SPCDFR50
106
84
101
116
26.3
5.1
-8.2
SPCDGR50
208
188
226
173
10.7
-8.0
20.3
Ticker
Weighted Average Market Spread as
of
Prev
Prev
Prev
MonthMonthQtrYrEnd
End
End
End
Spread Change
(%)
MTD
QTD
YTD
SPCDKR50
131
120
145
135
9.3
-9.4
-3.1
SPCDMR50
97
90
104
108
7.6
-7.3
10.8
Source: S&P Dow Jones Indices LLC and/or its affiliates. Data as of June 30, 2013. Index performance is based
on spread movement. Charts and graphs are provided for illustrative purposes. Past performance is no
guarantee of future results.
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

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