Drop in Sovereign CDS:Ratings Shows Continued Caution on Emerging Markets

笑声密集

Drop in Sovereign CDS:Ratings Shows Continued Caution on Emerging Markets

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Market participants’ assessment of aggregate sovereign credit quality deteriorated gradually over the course of 2013, and is now roughly where it was in 2012 during the height of the European sovereign debt crisis (Figure 1). The worsening this past year is largely due to a decline in CDS-implied ratings of emerging market countries (Figure 2). In Europe, the average CDS-implied rating fell by a single notch, following a dramatic three-notch increase in 2012 (Figure 3). We anticipate little change in market sentiment in the near to medium term in the absence of improvements in underlying fundamentals, which remain rare, as we explain below.