This risk is more pronounced in oil-exporting countries that draw a significant portion of government revenue from their energy sectors. As an illustration, Russia’s credit rating has been downgraded to below investment rate for the first time in a decade.
Since the announcement of the TPI, sovereign spreads have been range-bound and rather insensitive to shifts in rate expectations, despite repeated tightening shocks over the past year as the historically unprecedented sharp interest rate hiking cycle proceeded (Slide 8, right-hand side).