Bond Ratings and Default Spreads for Different Countries

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Bond Ratings and Cost of Debt

This table summarizes the latest bond ratings and appropriate default spreads for different countries. While you can use these numbers as rough estimates of country risk premiums, you may want to modify the premia to reflect the additional risk of equity markets. To estimate the long term country risk premium, I start with the country rating (from Moody's: and estimate the default spread for that rating (US corporate and country bonds) over the treasury bond rate. This becomes a measure of the added country risk premium for that country. I add this default spread to the historical risk premium for a mature equity market (estimated from US historical data) to estimate the total risk premium. In the short term especially, the equity country risk premium is likely to be greater than the country's default spread. You can estimate an adjusted country risk premium by multiplying the default spread by the relative equity market volatility for that market (Std dev in country equity market/Std dev in country bond). I have used the emerging market average of 1.5 (equity markets are about 1.5 times more volatile than bond markets) to estimate country risk premium. I have added this to the historical premium for the US of about 4.51% to get the total risk premium.

| |Long-Term Rating |Adj. Default Spread |Total Risk Premium |Country Risk Premium | |Country | | | | | |Alderney |Aaa |0 |4.51% |0.00% | |Andorra |Aaa |0 |4.51% |0.00% | |Argentina |Ca |900 |18.01% |13.50% | |Australia |Aaa |0 |4.51% |0.00% | |Austria |Aaa |0 |4.51% |0.00% | |Bahamas |A1 |100 |6.01% |1.50% | |Bahamas |A3 |135 |6.54% |2.03% | |Bahrain |Baa1 |150 |6.76% |2.25% | |Barbados |A3 |135 |6.54% |2.03% | |Belgium |Aa1 |75 |5.64% |1.13% | |Belize |Ba1 |325 |9.39% |4.88% | |Bermuda |Aaa |0 |4.51% |0.00%...
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