MacroVar monitors country risk by monitoring credit default swap indices of different countries.
Sovereign Risk Model
Sovereign Credit Default Swaps
|Last||-1 Week||-1 Month||-3 Months||-6 Months|
|United States Credit Default Swaps||10.4||10.4||9.5||9.1||11.1|
|France Credit Default Swaps||21.43||21.63||24.43||14.54||15.99|
|Germany Credit Default Swaps||9.92||10.62||10.07||9.63||10.3|
|United Kingdom Credit Default Swaps||11.0||12||11.25||12.5||17.5|
|Portugal Credit Default Swaps||31.0||31.5||32.5||28.5||38.5|
|Italy Credit Default Swaps||75.75||79||85.5||70.5||101.5|
|Spain Credit Default Swaps||33.5||34||37||30.5||45.5|
|Ireland Credit Default Swaps||16.75||17||14.15||14||17.25|
|Japan Credit Default Swaps||17.5||17||17.8||16.4||15.2|
|China Credit Default Swaps||35.0||36.5||38.25||31||29|
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.