Country risk
MacroVar monitors country risk by monitoring credit default swap indices of different countries.
Sovereign Risk Model
| Last | Signal | -1 Week | -1 Month | -3 Months | -6 Months | |
|---|---|---|---|---|---|---|
| Country Risk | -0.32 |
Sovereign Credit Default Swaps
| Last | -1 Week | -1 Month | -3 Months | -6 Months | |
|---|---|---|---|---|---|
| United States Credit Default Swaps | 42.8 | 42.79 | 43.24 | 43.23 | 29.68 |
| France Credit Default Swaps | 22.8 | 24.85 | 25.14 | 26.42 | 25.25 |
| Germany Credit Default Swaps | 15.38 | 15.94 | 18.22 | 21.02 | 13.33 |
| United Kingdom Credit Default Swaps | 36.5 | 36 | 36 | 30.5 | 28 |
| Portugal Credit Default Swaps | 42.75 | 43 | 46 | 50.25 | 47.25 |
| Italy Credit Default Swaps | 80.25 | 78 | 87.25 | 107 | 90.5 |
| Spain Credit Default Swaps | 45.0 | 45.5 | 47 | 52 | 49 |
| Ireland Credit Default Swaps | 24.5 | 24 | 22 | 24.5 | 24.25 |
| Japan Credit Default Swaps | 25.0 | 25.5 | 27.48 | 16.02 | 17.12 |
| China Credit Default Swaps | 65.75 | 60 | 63 | 84.5 | 65.88 |
Country risk model
Country risk (or sovereign risk) is the likelihood that a government goes bankrupt and the amount the investor loses if it happens. Credit-risky securities include government bonds. Credit default swaps are widely used derivatives used in credit risk management to describe market perceptions of credit risk for a specific sovereign. Credit default swaps (CDS) are derivatives contracts which by construction aim at quantifying the risk of default of a counterparty. Therefore, CDS written for sovereigns are early signals to monitor and detect elevated credit risk conditions for these countries and as a consequence for the global financial system.
MacroVar calculates for each of the twelve credit default swaps the average of the six month and twelve month z-scores. Extreme values of z-scores greater than two indicate elevated credit risk conditions and vice-versa. MacroVar sovereign risk index is the average of z-scores of the tweleve credit default swaps tracked.