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What Is The Market Pricing?

15 February 2016 by lberuti

Datagrapple has made a series of new Grapples available: the Probabilities of Default (PD). They enable you to see, on a given maturity, the evolution of the cumulative default probability for a given name or a group of names (in that case the average PD is displayed). The interpretation of this indicator is fairly straightforward. If the PD of an entity over a 5 year horizon is 25%, then there is only a three in four chance that it will still exist after 5 years. On the above Grapple, you can see for instance that the average PD of the basic materials sector has been increasing steadily since July last year, and that the PD of the energy sectors has blown out since January. There is nothing really surprising there, but it might be more unexpected to see that the market is currently pricing for the different European energy national champions (BP, ENI, Royal Dutch Shell, Repsol, Statoil and Total) a one in three chance that they will default over the next 10 years.