Report Shows Sovereign Default Incidence Still Moderate

Despite the stressful environment since the onset of the global financial crisis in 2008, the pace of sovereign defaults has remained moderate says Moody’s Investors Service in its eighth annual sovereign bond default study.

The credit ratings agency’s (CRA) report, entitled ‘Sovereign Default and Recovery Rates, 1983-2012 H1’, highlights that from the over 110 Moody’s-rated sovereigns, Greece was the only one to default since the start of 2011. Jamaica defaulted in 2010, but there were no rated sovereign defaults in 2009. Ecuador defaulted in late 2008. Since 1983, all defaulters were among the 25% lowest-rated sovereign issuers.

Moody’s adds that the global financial crisis has, however, continued to put pressure on sovereign creditworthiness, increasing the share of sovereign issuers in the lower tier of the investment grade. Nevertheless, the share of issuers rated Aa and above is still substantially larger for sovereign issuers than for corporate issuers.

A comparison between sovereign and corporate default rates by the CRA shows that, sovereign default rates have generally been, on average, modestly lower than those for corporates overall and by like rating symbol. However, the differences are not likely significant as the overall size of the sovereign sample is small. Furthermore, over the 1983-2012 H1 period of study, sovereign ratings have exhibited greater stability than their corporate counterparts. 

The study presents an analysis of all sovereign defaults since 1983 and compares and contrasts sovereigns and corporates with regard to default, migration, and recovery rates as well as ratings accuracy measures.

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