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Agencies’ Ratings have remained relative stable since the start of the COVID pandemic and through 2021. Changes have been mainly concentrated in Emerging Economies. Sovereign spreads have been clearly influenced by the strong and coordinated reaction of Central Banks in both Advanced Economies and Emerging Economies
Agencies' sovereign ratings and sovereign spreads in the CDS markets have remained relatively stable over the past year despite the current pandemic crisis and the large fiscal and economic activity deterioration, mainly due to the unprecedented support from fiscal and monetary policies
Further improvement of sovereign risk measures across the board, driven by a protracted search for yield, against the background of supportive central bank policies, together with better incoming cyclical data, muted inflation and some de-escalation of global uncertainties (trade war)
The search for yield and looser monetary policies across the board, favor sovereign spreads compression, despite a worsening global outlook, poorer incoming data and balance of risks, and the lack of improvement of fiscal disequilibria.
Just as current medicine cannot predict exactly when someone will suffer a stroke or cancer, economic science cannot predict precisely when the next recession, financial crisis or sovereign default will occur.
Against a background of increasing concerns on economic cycle strength and uprise of global trade tensions, the central banks' more dovish tone helps that financial tensions and global risk aversion remain bounded.
Global Risk Aversion experienced high volatility during the quarter, which was reflected mainly in equity markets, but not in sovereign CDS or emerging currencies markets. The improvement seen since the beginning of the year was favoured by the Fed's announcement of a more patient stance in its interest rate policy.
Many individuals and households experience moments of financial difficulty, prompted either by a personal shock, such as losing a job, or an economy-wide shock, such as a recession. Financial resilience is key for consumer welfare and the formal financial system plays an important role.