Country risk
MacroVar monitors country risk by monitoring credit default swap indices of different countries.
Sovereign Risk Model
| Signal | Last | -1 Week | -1 Month | -3 Months | -6 Months | |
|---|---|---|---|---|---|---|
| Country Risk | -0.6 | -0.5 | 0.2 | 2.18 | 1.91 |
Sovereign Credit Default Swaps
| Last | -1 Week | -1 Month | -3 Months | -6 Months | |
|---|---|---|---|---|---|
| United States Credit Default Swaps | 35.03 | 35.03 | 30 | 25 | 21.5 |
| France Credit Default Swaps | 21.09 | 22.86 | 25.97 | 29.7 | 23.71 |
| Germany Credit Default Swaps | 12.65 | 14.94 | 18.56 | 23.29 | 15.1 |
| United Kingdom Credit Default Swaps | 21.5 | 21 | 28 | 27 | 16 |
| Portugal Credit Default Swaps | 44.0 | 45.5 | 52 | 57.5 | 51.5 |
| Italy Credit Default Swaps | 92.0 | 105 | 124.5 | 139 | 146.5 |
| Spain Credit Default Swaps | 44.0 | 45.5 | 52 | 57.25 | 51 |
| Ireland Credit Default Swaps | 25.0 | 23 | 26 | 28.25 | 18 |
| Japan Credit Default Swaps | 17.12 | 17.12 | 17.12 | 19.8 | 19.9 |
| China Credit Default Swaps | 50.0 | 49.5 | 63.5 | 89.5 | 72.5 |
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.