Cyprus Default Probability Index at 22% Is Higher Since Bailout

Cyprus, which requested a loan from the euro area and the International Monetary Fund, faces a 22 percent probability of default in the coming year, according to a measure that combines bond and debt indicators.

The CEPIX Index, compiled by New York-based financial-services consulting firm Capco and presented today, shows the likelihood that Cyprus won’t honor its debts is now higher than the 15 percent probability when it agreed to the bailout. The index reflects investor views on credit risk measured by benchmark bond indexes and rating company default probabilities weighted by debt-to-gross-domestic-product ratios.

Cyprus agreed on March 25 to a 10 billion-euro ($13 billion) loan in return for measures including a tax on bank deposits of more than 100,000 euros. The Mediterranean island nation may need additional financing if its economy contracts more than expected or there are slippages in implementing the terms of its bailout program, the IMF wrote in a May 17 report.

The CEPIX index should “raise awareness of risk as a result of the current balance of payments crisis” and “help financial institutions and governments prepare for sovereign debt deterioration or default,” Peter Schurau, Capco’s Europe chief executive officer, said in a statement.

The index, which tracks euro zone countries and whose latest figures were updated yesterday, shows Greece has the second-highest probability of default, at 4.7 percent, followed by Portugal at 3.5 percent.

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