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3 This paper focuses on changes in the risk profile of sovereign debt issuers, with the intention to identify key trends and drivers of change. We have divided world debt risk into eight regions: US & UK, Western Europe, Emerging Europe, Scandinavia & Nordic Region, Middle East & Africa, Asia, Australia & New Zealand and Central & South America. In addition to identifying themes within each of these regions, macro trends across the sovereign debt sector are also discussed. All Credit Default Swap (CDS) values contained in the tables and graphs within this document are calculated by S&P Capital IQ CDS (formerly CMA Datavision), which provides independent CDS prices intraday and end-ofday based on data collected from S&P Capital IQ s consortium of CDS buy-side firms. S&P Capital IQ CDS specialises in consensus-based pricing for over-the-counter credit instruments, including CDS (single name, indices, tranches and quantos), Bonds and ABS. All spreads shown are five year mid PAR spreads, which is not the normal convention that is quoted in the market. CDS quoting conventions vary according to market conditions and conventions, and Par spreads are used as they can be computed consistently across all credits allowing for cross comparison. Where CDS data for the Sovereign is not available a majority state owned national bank Proxy is used to derive CDS and consequently the CPD of the country. This is the case for India, for which data for the State Bank of India is used, and for Tunisia, for which the Banque Centrale de Tunisie is used. Unless otherwise stated, data is as of the 28 th June 2013 close. Record highs are determined by using closing values and do not factor in intraday highs. quantifies the probability of a country being unable to honour its debt obligations over a given time period. For sovereign CDS, this typically includes the probability of a restructuring of debt. Unless otherwise stated, all values are for the five year CPD. CPD is calculated using an industry standard model and proprietary credit data from S&P Capital IQ CDS and is based on the price of the CDS and recovery assumption. Reference to risky in this report is in terms of the CPD. The CPD number may also include an element of devaluation risk as the standard currency for Sovereign CDS is not the domicile currency. S&P Capital IQ CDS provides independent, intraday pricing on approximately 1,450 single name CDS and CDS Indices. Widely used by traders, risk managers, treasurers and researchers in financial institutions across the world, CDS data is available directly from S&P Capital IQ CDS or via our strategic channel partners For more information about how S&P Capital IQ CDS can help you effectively monitor and manage your credit exposures please contact us at None Greece re-enters the report as CDS pricing becomes available following an absence of nearly a year

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5 Note: CPD is a function of the recovery level which varies according to several factors and distance to default, e.g. emerging markets assume 25%. Q was an eventful and volatile quarter with civil unrest in Brazil and Turkey, continued unrest in Egypt and political tensions in Portugal. However, these events were eclipsed by the news that the anticipated prospect of tapering (a reduction in the monthly bond buying program), announced by the US Fed on May 22 nd, could become a reality. The news prompted the start of a near doubling of interest rates and precipitated a selloff in High Yield and Latin America/Asian Emerging market Bonds and Stocks and a widening of CDS levels. Argentina remains the most risky sovereign globally despite it tightening 23% over the quarter. Venezuela slips one place to be the 3 rd most risky. Portugal s spreads managed to finish the quarter 4% tighter, even though the coalition government was on the verge of collapse as recession, high unemployment and a widening budget deficit, prompted the finance minister to resign. Spreads however, have continued to widen in Q3. Greece Credit Default Swaps start trading again, closing the quarter at 18.7%+100 running and 3.5% Bid/Ask Spread, as it tries to secure a deal to lay off state workers ( Troika ).

6 Note: Data for Greece from 17 th May.

7 No change in the top three least risky sovereign credits which all end the quarter at 2-3bps tighter. The US climbs up a position as spreads tighten to 27bps from 37bps - the best performer in the quarter. The UK and Czech Republic enter the top 10 as CDS spreads in Australia and NZ widen above 50bps, losing them their positions in the top 10 least risky table.

8 The cost of protection in the US tightened 27bps as unemployment drops to 7.6%, ever closer to the FED target of 7%. CDS Spreads in Argentina traded in a band of 2000bps as a prospect of a default continues and the second largest country in the region files a petition with the US Supreme court. Hungary tightens to 317bps, escaping the volatile widening of spreads in Emerging market economies.

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10 CDS levels in China widen to 118bps as the growth rate slows and approaches 7.5%, topping the largest percentage widener table. Latin America suffered its worst quarterly performance for some time, as rising interest rates and a slowing of growth in China sees a remarkable sell off in the region. Spreads in Peru touched 175bps before settling back to 144bps at quarter end, with 10bps due to the roll from the June to Sep 5Y contract.

11 US CDS spreads tightened considerably, and US fiscal policy seems to be working, as the world s largest economy enjoys an improving employment rate, higher stock prices and a general bullish outlook from top CEOs. This prompted the U.S. Fed to review its $85bn monthly buyback program and to consider to taper i.e. gradually reduce the repurchase program over time. This started a selloff of US bonds, wider swap rates (almost doubling), lower stock prices and a general selloff in emerging market debt, mainly in Latin America, Africa and Asia, excluding Japan. CDS spreads in the UK remained fairly stable over Q2, closing the quarter at 50bps as it braces itself for a new Governor of the Bank of England, Canadian born Mark Carney.

12 Western Europe tightened 10% overall in the quarter, as positive economic data in Italy and Spain saw spreads tighten in these two important economies in Europe. The Portuguese government tenure could be cut short as worsening economic data prompt calls for an early election. CDS Spreads end the quarter at 392bps. Spreads in Switzerland tighten to 30bps as liquidity continues to improve in CDS.

13 Spreads in Ukraine and Russia widen 37% and 20% respectively. Russia/Gazprom OAO Basis peaks to 100bps towards the end of June. Hungary and Romania buck the trend and tighten 18% and 14% respectively.

14 The Nordic region continues to be the safe haven place to be in terms of CDS, as spreads tightened 11% overall in the region. Iceland spreads remain virtually unchanged, settling around 160bps.

15 CDS Spreads in the region widened 18% as emerging markets assets sell off in the quarter. Iraq bucks the trend remaining unchanged on the quarter as International banks start to expand into the region and the country boosts oil exports and rebuilds its economy. CDS Spreads in Turkey peak at 240bps as anti-government protests in Taksim square gathered momentum in June. Morsi s tenure as the leader of Egypt came to an abrupt end following civil unrest and a military leadership once again takes control. Bid/Ask spreads widen 50bps and the cost of protection widens to 900bps. Israel remains stable widening only 2bps on the quarter as the economy remains strong driven by hi-technology and chemical industries. Note: Banque Centrale de Tunisie is used as proxy.

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17 CDS Spreads in Asia, excluding Japan, widen 23% as China growth slows prompting concern over the growth of other Asian emerging countries. India, Indonesia, Malaysia and Kazakhstan see the cost of debt protection widen over 25%. Japan remains stable at 77bps in a volatile quarter for the currency and the stock market but not the CDS market. Note: State Bank of India is used as a proxy.

18 CDS Spreads in Australia and New Zealand spiked mid-june touching 70bps. The prospects of slower growth in Australia prompted the Reserve Bank of Australia to keep rates lower, weakening the Australian Dollar FX rates, resulting in CDS Spreads pulling back to the Mid-50 s.

19 Central & South America, excluding Argentina, widened a dramatic 45% on average in what must have been a painful quarter for investors in the region. Following a near decade of growth and prosperity the government of Brazil, led by Dilma Rousseff, faced its toughest test for some time as more than a million people participated in protests. CDS Spreads approach 200bps a support level seen three times before since (See chart on next page).

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23 We can look at the month of June in two stages when reviewing the daily spread performance of the S&P/ISDA 100 CDS OTR Index throughout the month. Credit spreads remained within a range through the first half of the month, widening slightly until the 12 th, at which point the index tightened for three days. The tightening was in response to economic numbers that pointed to inflation remaining low and the economy being stable. The University of Michigan Consumer Confidence came in lower (82.7) compared to the surveyed number (84.5), and month-over-month CPI was also lower than expected at 0.1%. The second stage of June began on the 19 th with the press announcement following the FOMC meeting. Fed Chairman Bernanke s speech about the stronger economic improvement to come and questions about the timeline for pulling back on economic stimulus led to dramatic selling in fixed income and equity markets. The S&P/ISDA U.S. 150 Credit Spread Index widened from 69bps to 71bps on the day of the FOMC announcement followed by continued widening on the 20 th (80bps). This index reached a peak spread of 85bps on the 24 th, but since then has tightened slightly as the market has returned to behaving in a more orderly fashion. The question is how long does the new normal last? U.S. unemployment numbers are due out on July 5 th. Whether this will be a volatile summer is yet to be seen. The Fed s pending actions and events in markets such as Europe or China could make the next few months interesting. Exhibit 1: Spread History for the S&P/ISDA U.S. 150 Credit Spread Index versus the S&P 500 Price Return S&P/ISDA U.S. 150 Credit Spread Index (bps) S&P 500 (Price Return) /12/ /01/ /02/ /03/ /04/ /05/ Source: S&P Dow Jones Indices LLC and/or its affiliates, Data as of June 30, Index performance is based on spread movement. Charts and graphs are provided for illustrative purposes. Past performance is no guarantee of future results.

24 All rating sector indices were wider in June. The largest mover was the lower-credit S&P/ISDA CDS U.S. High Yield B and Below Index whose spread change of 36 bps widened the index level for the month from 363bps to 399bps. The S&P/ISDA CDS U.S. High Yield BB Index followed suit, but widened by just 28bps. At a spread of 358 YTD, the overall S&P/ISDA CDS U.S. High Yield Index is still 79bps tighter than the 437bps level at which it began the year. Investment-grade CDS, as measured by the S&P/ISDA CDS U.S. Investment Grade Index, widened on the month (+7.5bps), but is tame in comparison to high-yield CDS. Year-to-date, spreads on the three indices (Investment Grade, Investment Grade A & Above and Investment Grade BBB) are all about 20bps tighter than they were at the beginning of the year. All industry sector indices were also wider in June, with only the S&P/ISDA CDS U.S. Healthcare Select 10 Index s spread widening remaining below double digits at 6.8bps. The S&P/ISDA CDS U.S. Homebuilders Select 10 Index widened the most (32bps) closely followed by the S&P/ISDA CDS U.S. Energy Select 10 Index, which widened 30bps. The S&P/ISDA CDS U.S. Financials Select 10 and S&P/ISDA CDS European Banks Select 15 experienced roughly the same degree of widening as the two indices spreads moved by 22 and 20bps respectively. The S&P/ISDA CDS U.S. Financials Select 10 s spread is still 10bps tighter than its spread of 116bps at the beginning of the year. However, the S&P/ISDA CDS European Banks Select 15 s spread is now 35bps wider on the year at 208bps compared to its 173 spread at the beginning of the year. Exhibit 3: S&P/ISDA CDS U.S. Sector Historical Spreads Weighted Av g Spread Home Builders Consumer Discretionary Consumer Staples Energy Healthcare Financials Source: S&P Dow Jones Indices. Data as of June 30, Charts are provided for illust rative purposes. This chart may reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.

25 Exhibit 4: Daily Equalized Sector Spread Performance Weighted 115 Av g. Spread Home Builders Consumer Discretionary Consumer Staples Energy Healthcare Financials The average spread widening between the 19 th and the 20 th was 18 bps. Spread movement ranged from Homebuilders +31bps to Healthcare s +8bps. Once the dust settled, spreads improved going into the end of the month. 90 Source: S&P Dow Jones Indices. Data as of June 30, Charts are provided for illustrative purposes. This chart may reflect hypothetical historical performance. Please see the Performance Disclosure at the end o f this document for more information regarding the inherent limitations associated with back-tested performance. Exhibit 5: Homebuilders Performance Comparison Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May S&P/ISDA CDS U.S. Homebuilders Select 10 Index (bps) S&P Homebuilders Select Industry Index (TR) 4,000 3,500 3,000 2,500 2,000 1,500 1, The S&P/ISDA CDS U.S. Homebuilders Select 10 Index started the month with a spread of 172bps and continued to widen, reaching a peak of 232bps before ending the month at 204bps. The S&P Homebuilders Select Industry Index s total return was -4.59% for the month. Source: S&P Dow Jones Indices. Data as of June 30, Charts are provided for illustrat ive purposes. This chart may reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.

26 Exhibit 6: Performance of the CDS Financial Sector Indices /29 7/29 8/29 9/29 10/2911/2912/29 1/29 2/28 3/31 4/30 5/31 S&P/ISDA U.S. Financial 30 Credit Spread (bps) S&P/ISDA CDS Financials Select 10 (bps) S&P/ISDA CDS Euro Banks Select 15 (bps-right scale) The S&P/ISDA U.S. Financial 30 Credit Spread widened by 12 bps while the S&P/ISDA CDS Financials Select 10 widened by 22bps in June. S&P/ISDA CDS European Banks Select 15 widened by 21bps after the FOMC meeting (June 20 th ). A week later, the index recovered so that month-to-date the S&P/ISDA CDS Euro Banks Select 15 was 20bps wider, which was in line with the widening of the S&P/ISDA CDS Financials Select 10. Source: S&P Dow Jones Indices. Data as of June 30, Charts are provided for illustrative purposes. This chart may reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance. With all the movement in the U.S. CDS markets, the widening of the S&P/ISDA Eurozone Developed Nation Sovereign CDS and S&P/ISDA International Developed Nation Sovereign CDS indices spreads by 11bps and 7bps seems tame. Year-to-date, both these indices spreads are tighter, though not by much. Exhibit 7: Spread Comparison of Eurozone and International Developed Nation Sovereign CDS Indices Spread (bps) Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May S&P/ISDA Eurozone Developed Nation Sovereign CDS Index (SPCDKR50) S&P/ISDA International Developed Nation Sovereign CDS Index (SPCDMR50) The S&P/ISDA Eurozone Developed Nation Sovereign CDS Index widened by 11 bps while the S&P/ISDA International Developed Nation Sovereign CDS Index, which contains a broader selection of countries, widened by 7bps. Source: S&P Dow Jones Indices. Data as of June 30, Charts are provided for illustrative purposes. This chart may reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for mo re information regarding the inherent limitations associated with back-tested performance.

27 Exhibit 2: S&P/ISDA CDS Index Data as June 30, 2013 Weighted Average Market Spread as of Credit Spread CDS Indices Ticker Prev Prev Prev Month- Month- Qtr- Yr- End End End End Spread Change (%) MTD QTD YTD S&P/ISDA 100 CDS SPCDXR S&P/ISDA U.S. 150 Credit Spread SPCD5R S&P/ISDA U.S. Corporate SPCD2R Credit Spread 13.0 S&P/ISDA U.S. Financial 30 Credit - Spread SPCD3R Weighted Average Market Spread as of Spread Change (%) Rating Sector CDS Indices Ticker Prev Prev Prev Month- Month- Qtr- Yr- End End End End MTD QTD YTD S&P/ISDA CDS U.S. Inv estment - SPCDZR Grade 18.8 S&P/ISDA CDS U.S. Inv estment - SPCDCR Grade A and Abov e 30.4 S&P/ISDA CDS U.S. Inv estment - SPCDAR Grade BBB 17.5 S&P/ISDA CDS U.S. High Yield SPCDYR S&P/ISDA CDS U.S. High Yield BB SPCDBR S&P/ISDA CDS U.S. High Yield B and Below Industry Sector CDS Indices S&P/ISDA CDS U.S. Homebuilders Select 10 S&P/ISDA CDS U.S. Consumer Discretionary Select 20 S&P/ISDA CDS U.S. Consumer Staples Select 10 S&P/ISDA CDS U.S. Energy Select 10 S&P/ISDA CDS U.S. Healthcare Select 10 S&P/ISDA CDS U.S. Financials Select 10 S&P/ISDA CDS European Banks Select 15 Sovereign CDS Indices SPCDWR Weighted Average Market Spread as Spread Change of (%) Ticker Month- End Prev Month- End Prev Qtr- End Prev Yr- End MTD QTD YTD SPCDVR SPCDUR SPCDRR SPCDQR SPCDPR SPCDFR SPCDGR Ticker Weighted Average Market Spread as of Prev Prev Prev Month- Month- Qtr- Yr- End End End End Spread Change (%) MTD QTD YTD S&P/ISDA Eurozone Dev eloped SPCDKR Nation Sov ereign CDS S&P/ISDA International Dev eloped - Nation Sov ereign CDS SPCDMR Source: S&P Dow Jones Indices LLC and/or its affiliates. Data as of June 30, Index performance is based on spread movement. Charts and graphs are provided for illustrative purposes. Past performance is no guarantee of future results.

28 S&P Capital IQ, a business line of McGraw Hill Financial, is a leading provider of multi-asset class data, research and analytics to institutional investors, investment advisors, universities, consultants, and financial and quantitative analysts around the world. We provide a broad suite of capabilities designed to help you track performance, broaden your research and support your analysis and investment ideas. Through leading desktop solutions such as Capital IQ and Global Credit Portal, enterprise solutions such as Compustat, S&P Securities Evaluations and Global Data Solutions, S&P Capital IQ sharpens financial intelligence into the wisdom today s investors need. (Formerly CMA Datavision) Following the acquisition of CMA in 2012, S&P Capital IQ CDS offers independent pre & post-trade pricing, with deep capabilities and broad asset class coverage for fixed income and OTC derivatives. S&P Capital IQ provides: CDS 1,500 intraday single name and index curves, plus 200 rating sector benchmark curves Corporates, Sovereigns and Loans - 100,000+ evaluated prices and pre and post trade prices Structured Finance and US Municipal Bonds Over 2.6 Million daily evaluated prices If you have questions or comments about this report, or wish to learn more about the products and services that S&P Capital IQ offers, please contact us: 20 Canada Square London E14 5LH UK +44 (0) Water Street New York NY USA Phone: +44 (0) S&P Capital IQ does not give investment advice and no part of the above article provided by the author or S&P Capital IQ shall constitute advice on the merits of buying, selling, subscribing for or underwriting a particular investment or pursuing a particular investment strategy. The ideas and or opinions expressed in this article are the author s own and do not necessarily reflect those of S&P Capital IQ. S&P Capital IQ and its affiliates do not guarantee the accuracy or completeness of the factual content contained in this article, and they make no express or implied warranties, including for merchantability or fitness for a particular purpose or use. No advice or information, obtained by you through or from the enclosed material shall create any warranty or other obligation between you and the author and/or S&P Capital I Q or any of its affiliates. The author has no investments in the OTC credit markets. Standard & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC, a subsidiary of McGraw Hill Financial Inc. Go to S&P Dow Jones Indices LLC is a subsidiary of McGraw Hill Financial Inc. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All information provided by S&P Dow Jones Indices is impersonal and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices is not an investment advisor, and inclusion of a security or instrument within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security or instrument. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties. Go to for additional disclaimer and disclosure information about S&P Dow Jones Indices.

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