Economy 7 October 2011, 3:54pm

Hungary among the top 10 most risky countries in the world - CMA

Portfolio

Two countries debuted among the world’s top 10 riskiest economies and one of these is Hungary. According to the latest CMA Global Sovereign Debt Credit Risk Report, Hungary ranks 9th, with a 501-basis-point 5-yr CDS (Credit Default Swap) premium and an almost 31% CPD (Cumulative Probability of Default) indicator. Unsurprisingly, Greece remains on top of the list, but there is no shortage of rather interesting results either.

Italy and Hungary entered the top 10 most risky sovereigns “as the cost of protection rose significantly across all global credit markets."

This quarter saw downgrades in the U.S., Japan and Italy, as well as a slowdown of growth in China and Eurozone debt concerns affecting the broader region, CMA Datavision said in its latest report.

“The markets are pricing in an almost certain default event in Greece as the upfront cost of protection peaked at 63% vs. 100 coupon - implying a recovery level below 40% (CMA now assume 32% recovery). The cheapest bonds are trading in the low-to-mid 30% according to CMA Datavision Bonds." Portugal is the 2nd most risky sovereign in Q3, while in the second quarter it was only the 3rd.

Hungary also enters the top 10, although it is riskier than Spain, a lower recovery assumption (25%) for emerging market countries means it has a lower default probability than Spain.

Hungary’s CDS levels surpassed 500 bps, as the increasing cost of Swiss Franc mortgages being taken out in the country make headlines. Since then CDS levels soared to around 560 bps.

Spreads in the region remained relatively calm throughout the quarter, except for the last two weeks of September where cost of protection rose globally.

Hungary first made it to the top 10 in Q4 2010 then it managed to get out of there after Q1 this year.

A few interesting developments

One of the most interesting changes in the CMA ranking is that sovereigns that have been considered the world’s least risky economies have also seen their positions worsen, including Scandinavia.

“The cost of protection in Scandinavia, a very stable region in previous quarters soared this quarter, perhaps implying that bail outs may also require the assistance from this region."

Denmark, a large exporter to the Eurozone, widened 251% this quarter to 140 bps, topping the worst performer table. Norway and Sweden, resilient in recent quarters to global events, could not escape the events in Q3 2011 and also widened significantly.

In the list of the worst quarterly performances Denmark and the Netherlands is followed by Italy (+165% to 453), Austria (+160% to 160) and Germany (+158% to 105.7). The latter did not even make it to the top 10 least risky countries.

At first glimpse it may also seem strange that the United States stepped forward quite a lot in the ranking of the top 10 least risky countries (to 2nd from 7th) while it was stripped of its AAA credit rating in early August. It was the first time in history that the U.S. has not been rated AAA. This also proves that the downgraded had not created doubts about the safe haven role of the U.S.