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 | -0.28 | -0.14 | -0.22 | -1.3 | -1.29 |
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.