Countries Default Risk ?

[puretruth]

I would like to know what the relative default risk is between 2 countries.

What numbers I have to compare to have an idea of such from the following table ?


http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html

 

[Martinghoul]

Quote from puretruth:

I would like to know what the relative default risk is between 2 countries.

What numbers I have to compare to have an idea of such from the following table ?


http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html

If you believe the guy's methodology, then it's the last column. Otherwise, you can come up with your own estimate using any of the three other columns as inputs.

 

[puretruth]

Quote from Martinghoul:

If you believe the guy's methodology, then it's the last column. Otherwise, you can come up with your own estimate using any of the three other columns as inputs.

What column would you or an economist choose to compare risk between 2 countries ?

What exactly is "default spread" ?

 

[Martinghoul]

Quote from puretruth:

What column would you or an economist choose to compare risk between 2 countries ?

What exactly is "default spread" ?

Tough question... None of them, to be honest. I would only make a meaningful comparison if I were an expert on the mkts in question. I am not an EM expert, but I suppose I would be somewhat comfortable with using his "Country Risk Premium" numbers for EM countries, because in those cases a sovereign rating may translate well into risk premium.

However, I would take the guy's numbers with a great pinch of salt, especially for Western European sovereigns. Indeed, according to his methodology, Germany, France, Ireland and Austria are all equally riskless (since they're all AAA). Now that is a conclusion that, I guarantee you, is completely ridiculous. Makes me a bit skeptical about the ratings-based method used.

Generally, I use sovereign CDS levels as a measure of country risk, but using those is not without flaws either.

On that page, the guy defines "default spread" as a yield differential between a risky govt bond issued by the country in question and a risk-free govt bond (e.g. German Bund).

 

[puretruth]

Maybe someone has a better source that quantifies country risk ..

 

[Martinghoul]

Quote from puretruth:

Maybe someone has a better source that quantifies country risk ..

Maybe if you tell me what you're actually trying to achieve, I could help you...

 

[puretruth]

Quote from Martinghoul:

Maybe if you tell me what you're actually trying to achieve, I could help you...

I am planning to put some savings money in certain countries.

Do the last columns in the above link give a good idea about the risk of losing savings money ?

 

[Martinghoul]

Quote from puretruth:

I am planning to put some savings money in certain countries.

Do the last columns in the above link give a good idea about the risk of losing savings money ?

Are you investing in govt bonds in these countries? If you are, I'd look at sov CDS, but the webpage should be OK, in a rough sense. Ultimately, given the methodology, it might be easier to just look at the sovereign rating.

If you're putting money into banks or equity mkts in the countries in question, sovereign default risk shouldn't be your main concern, methinks.

 

[puretruth]

Quote from Martinghoul:

Are you investing in govt bonds in these countries? If you are, I'd look at sov CDS, but the webpage should be OK, in a rough sense. Ultimately, given the methodology, it might be easier to just look at the sovereign rating.

If you're putting money into banks or equity mkts in the countries in question, sovereign default risk shouldn't be your main concern, methinks.

No govt bonds , savings account and term deposits with banks.

Where can I find figures on the sovereign rating ?

 

[Martinghoul]

Try here:
http://www2.standardandpoors.com/po...ings_sov/2,1,8,0,0,0,0,0,0,0,3,0,0,0,0,0.html

Good luck to you with your investments, but be careful. If you're giving money to banks, sovereign risk shouldn't be your main concern. At the very least, the very first thing to find out (well before the sov rating) is what types of depositor protection schemes are available in the target country and what amounts they guarantee.