Broad-based declines in Asia-Pacific’s market-based measures of credit risk reflect theimproving trend in global sovereign risk. Of the 70 countries in our Sovereign EDFTM(Expected Default Frequency1) database, more than two thirds have seen their SovereignEDF measures decline since the beginning of the year. Just five sovereign EDFs have risenby 10 basis points or more. The two key drivers of the sovereign EDF – the general measureof investor risk aversion (known as the Market Sharpe Ratio) and the CDS spreads ongovernment bonds – have both helped to lower Sovereign EDF measures in 2016. The Asia-Pacific region is indicative of this trend, with all but one of the region’s sovereigns improvingsince the start of the year (see Exhibit 1). Japan's Sovereign EDF measure exhibited some ofthe largest improvements, declining from 0.13% to its current 0.07%. The one exception isHong Kong; its five-year Sovereign EDF measure increased slightly from 0.09% in January toits current 0.13%.