>Moody’s releases report on sovereigns (CITI)

■ Moody’s pointed out that “2010 will be a tumultuous time for sovereign risk” — Moody’s released a report on sovereigns on December 15. Moody’s pointed out that “2010 will be a tumultuous time for sovereign risk” based on its outlook for “uncertainties surrounding the likely pace and intensity of fiscal and monetary ‘exit strategies’ as governments start to unwind quantitative easing programs.”

■ Credit implications 1) — We believe that sovereigns will be one focus of the credit markets for the foreseeable future. This is based on: 1) fears that fiscal profiles are deteriorating in many countries due to further increases in expenditures and debt resulting from measures to respond to the financial crisis; 2) the tendency for governments to aggressively issue bonds in domestic and overseas markets compared to corporations and financial institutions; 3) the tendency towards downgrades in sovereign ratings and outlooks; and 4) the increase in trading volume for sovereign credit default swaps (CDS) and volatility seen in spreads compared to other years.

■ Credit implications 2) — From the perspective of public sector credit, we believe that the keys for maintaining stable credit are: 1) to have sovereigns, government-related institutions, local governments, or depending on the region, international institutions, appropriately and effectively allocate revenue sources in terms of size and timing, etc.; 2) hold down the crowding-out effect; and 3) realize future economic growth and a stable tax revenue structure.

To read the full report: SOVEREIGNS