once more, America’s federal interest costs amounted to 1.6% of GDP in 2020. Why is El Salvador Ranked Higher?ĭespite having lower values in the two metrics discussed above, El Salvador ranks higher than Ukraine because of its larger interest expense and total government debt.Īccording to the data above, El Salvador has annual interest payments equal to 4.9% of its GDP, which is relatively high. This suggests that the market has very little faith in Ukraine’s ability to avoid default.
If a CDS has a spread of 300 bps (3%), this means that to insure $100 in debt, the investor must pay $3 per year.Īpplying this to Ukraine’s 5-year CDS spread of 10,856 bps (108.56%), an investor would need to pay $108.56 each year to insure $100 in debt. In exchange for receiving coverage, the buyer of a CDS pays a fee known as the spread, which is expressed in basis points (bps). The seller of the CDS represents a third party between the lender (investors) and borrower (in this case, governments). What is a CDS Spread?Ĭredit default swaps (CDS) are a type of derivative (financial contract) that provides a lender with insurance in the event of a default. 10-year government bond is currently 2.9%. As a point of comparison, the yield on a U.S. This means that a bond with face value of $100 could be purchased for $30.īecause yields move in the opposite direction of price, the average yield on these bonds has climbed to a very high 60.4%. That scenario has prompted a sell-off of Ukrainian government bonds, pushing their value down to nearly 30 cents on the dollar. If this happened, it’s possible that Ukraine’s existing debt obligations will never be repaid. To understand why, consider a scenario where Russia was to assume control of the country. Ukraine has high default risk due to its ongoing conflict with Russia. Countryġ basis point (bps) = 0.01% Why are Ukraine’s Bond Yields so High? To better understand this ranking, let’s focus on Ukraine and El Salvador as examples.
Interest expense as a percentage of GDP.5-year credit default swap (CDS) spread.Government bond yields (the weighted-average yield of the country’s dollar bonds).The Sovereign Debt Vulnerability Rankingīloomberg’s Sovereign Debt Vulnerability Ranking is a composite measure of a country’s default risk. To find out, we’ve used data from Bloomberg to rank the countries with the highest default risk.
Not only does this impact Sri Lanka’s economic future, but it also raises an important question: which other countries are at risk of default? The country’s government was given a 30-day grace period to cover $78 million in unpaid interest, but ultimately failed to pay. In May 2022, the South Asian nation of Sri Lanka defaulted on its debt for the first time. Countries with the Highest Default Risk in 2022
0 kommentar(er)
