Country Default Spreads and Risk Premiums

Last updated: January 2012

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 additonal risk of equity markets. To estimate the long term country risk premium, I start with the country rating (from Moody's: www.moodys.com) and estimate the default spread for that rating (based upon traded country bonds) over a default free government 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 my estimated risk premium of 6% for mature markets (obtained by looking at the implied premium for the S&P 500) to get the total risk premium.

Country
Region
 Local Currency Rating
Adj. Default Spread
Total Risk Premium
Country Risk Premium
Albania
Eastern Europe & Russia
B1
400
12.00%
6.00%
Angola
Africa
Ba3
325
10.88%
4.88%
Argentina
Central and South America
B3
600
15.00%
9.00%
Armenia
Eastern Europe & Russia
Ba2
275
10.13%
4.13%
Australia
Australia & New Zealand
Aaa
0
6.00%
0.00%
Austria [1]
Western Europe
Aaa
0
6.00%
0.00%
Azerbaijan
Eastern Europe & Russia
Ba1
240
9.60%
3.60%
Bahamas
Caribbean
A3
115
7.73%
1.73%
Bahrain
Middle East
Baa1
150
8.25%
2.25%
Bangladesh
Asia
Ba3
325
10.88%
4.88%
Barbados
Caribbean
Baa3
200
9.00%
3.00%
Belarus
Eastern Europe & Russia
B3
600
15.00%
9.00%
Belgium [1]
Western Europe
Aa3
70
7.05%
1.05%
Belize
Central and South America
B3
600
15.00%
9.00%
Bermuda
Caribbean
Aa2
50
6.75%
0.75%
Bolivia
Central and South America
B1
400
12.00%
6.00%
Bosnia and Herzegovina
Eastern Europe & Russia
B2
500
13.50%
7.50%
Botswana
Africa
A2
100
7.50%
1.50%
Brazil
Central and South America
Baa2
175
8.63%
2.63%
Bulgaria
Eastern Europe & Russia
Baa2
175
8.63%
2.63%
Cambodia
Asia
B2
500
13.50%
7.50%
Canada
North America
Aaa
0
6.00%
0.00%
Cayman Islands
Caribbean
Aa3
70
7.05%
1.05%
Chile
Central and South America
Aa3
70
7.05%
1.05%
China
Asia
Aa3
70
7.05%
1.05%
Colombia
Central and South America
Baa3
200
9.00%
3.00%
Costa Rica
Central and South America
Baa3
200
9.00%
3.00%
Croatia
Eastern Europe & Russia
Baa3
200
9.00%
3.00%
Cuba
Caribbean
Caa1
700
16.50%
10.50%
Cyprus [1]
Western Europe
Baa3
200
9.00%
3.00%
Czech Republic
Eastern Europe & Russia
A1
85
7.28%
1.28%
Denmark
Western Europe
Aaa
0
6.00%
0.00%
Dominican Republic
Caribbean
B1
400
12.00%
6.00%
Ecuador
Central and South America
Caa2
850
18.75%
12.75%
Egypt
Africa
B2
500
13.50%
7.50%
El Salvador
Central and South America
Ba2
275
10.13%
4.13%
Estonia
Eastern Europe & Russia
A1
85
7.28%
1.28%
Fiji Islands
Asia
B1
400
12.00%
6.00%
Finland [1]
Western Europe
Aaa
0
6.00%
0.00%
France [1]
Western Europe
Aaa
0
6.00%
0.00%
Georgia
Eastern Europe & Russia
Ba3
325
10.88%
4.88%
Germany [1]
Western Europe
Aaa
0
6.00%
0.00%
Greece [1]
Western Europe
Caa1
700
16.50%
10.50%
Guatemala
Central and South America
Ba1
240
9.60%
3.60%
Honduras
Central and South America
B2
500
13.50%
7.50%
Hong Kong
Asia
Aa1
25
6.38%
0.38%
Hungary
Eastern Europe & Russia
Ba1
240
9.60%
3.60%
Iceland
Western Europe
Baa3
200
9.00%
3.00%
India
Asia
Baa3
200
9.00%
3.00%
Indonesia
Asia
Ba1
240
9.60%
3.60%
Ireland [1]
Western Europe
Ba1
240
9.60%
3.60%
Isle of Man
Financial Center
Aaa
0
6.00%
0.00%
Israel
Middle East
A1
85
7.28%
1.28%
Italy [1]
Western Europe
A2
100
7.50%
1.50%
Jamaica
Caribbean
B3
600
15.00%
9.00%
Japan
Asia
Aa3
70
7.05%
1.05%
Jordan
Middle East
Ba2
275
10.13%
4.13%
Kazakhstan
Eastern Europe & Russia
Baa2
175
8.63%
2.63%
Korea
Asia
A1
85
7.28%
1.28%
Kuwait
Middle East
Aa2
50
6.75%
0.75%
Latvia
Eastern Europe & Russia
Baa3
200
9.00%
3.00%
Lebanon
Middle East
B1
400
12.00%
6.00%
Lithuania
Eastern Europe & Russia
Baa1
150
8.25%
2.25%
Luxembourg [1]
Financial Center
Aaa
0
6.00%
0.00%
Macao
Asia
Aa3
70
7.05%
1.05%
Malaysia
Asia
A3
115
7.73%
1.73%
Malta [1]
Western Europe
A2
100
7.50%
1.50%
Mauritius
Africa
Baa2
175
8.63%
2.63%
Mexico
Central and South America
Baa1
150
8.25%
2.25%
Moldova
Eastern Europe & Russia
B3
600
15.00%
9.00%
Mongolia
Asia
B1
400
12.00%
6.00%
Montenegro
Eastern Europe & Russia
Ba3
325
10.88%
4.88%
Morocco
Africa
Ba1
240
9.60%
3.60%
Namibia
Africa
Baa3
200
9.00%
3.00%
Netherlands [1]
Western Europe
Aaa
0
6.00%
0.00%
New Zealand
Australia & New Zealand
Aaa
0
6.00%
0.00%
Nicaragua
Central and South America
B3
600
15.00%
9.00%
Norway
Western Europe
Aaa
0
6.00%
0.00%
Oman
Middle East
A1
85
7.28%
1.28%
Pakistan
Asia
B3
600
15.00%
9.00%
Panama
Central and South America
Baa3
200
9.00%
3.00%
Papua New Guinea
Asia
B1
400
12.00%
6.00%
Paraguay
Central and South America
B1
400
12.00%
6.00%
Peru
Central and South America
Baa3
200
9.00%
3.00%
Philippines
Asia
Ba2
275
10.13%
4.13%
Poland
Eastern Europe & Russia
A2
100
7.50%
1.50%
Portugal [1]
Western Europe
Ba2
275
10.13%
4.13%
Qatar
Middle East
Aa2
50
6.75%
0.75%
Romania
Eastern Europe & Russia
Baa3
200
9.00%
3.00%
Russia
Eastern Europe & Russia
Baa1
150
8.25%
2.25%
Saudi Arabia
Middle East
Aa3
70
7.05%
1.05%
Senegal
Middle East
B1
400
12.00%
6.00%
Singapore
Asia
Aaa
0
6.00%
0.00%
Slovakia
Eastern Europe & Russia
A1
85
7.28%
1.28%
Slovenia [1]
Eastern Europe & Russia
A1
85
7.28%
1.28%
South Africa
Africa
A3
115
7.73%
1.73%
Spain [1]
Western Europe
A1
85
7.28%
1.28%
Sri Lanka
Asia
B1
400
12.00%
6.00%
St. Vincent & the Grenadines
Caribbean
B1
400
12.00%
6.00%
Suriname
Caribbean
Ba3
325
10.88%
4.88%
Sweden
Western Europe
Aaa
0
6.00%
0.00%
Switzerland
Western Europe
Aaa
0
6.00%
0.00%
Taiwan
Asia
Aa3
70
7.05%
1.05%
Thailand
Asia
Baa1
150
8.25%
2.25%
Trinidad and Tobago
Caribbean
Baa1
150
8.25%
2.25%
Tunisia
Africa
Baa3
200
9.00%
3.00%
Turkey
Asia
Ba2
275
10.13%
4.13%
Ukraine
Eastern Europe & Russia
B2
500
13.50%
7.50%
United Arab Emirates
Middle East
Aa2
50
6.75%
0.75%
United Kingdom
Western Europe
Aaa
0
6.00%
0.00%
United States of America
North America
Aaa
0
6.00%
0.00%
Uruguay
Central and South America
Ba1
240
9.60%
3.60%
Venezuela
Central and South America
B1
400
12.00%
6.00%
Vietnam
Asia
B1
400
12.00%
6.00%

 

Last updated: January 2012

Aswath Damodaran