J.P. Morgan, headquartered in the United States, is one of the largest investment banks and financial services firms in the world. It is part of JPMorgan Chase & Co. Through its research division (J.P. Morgan Index Research), the firm calculates and publishes the EMBI, the most widely used indicator worldwide for measuring the “country risk” of emerging economies, including Ecuador.

The Central Bank of Ecuador (BCE) reports that the index used internationally as a benchmark for tracking the risk of emerging countries, the EMBI (Emerging Markets Bond Index), prepared by J.P. Morgan, has updated its methodology and publication format.

What is country risk, and why does it matter to Ecuadorians?

Country risk is the indicator international markets use to measure confidence in a state’s ability to repay its debt. The lower the number, the lower the perceived risk, and the better the conditions for the country to access international financing and attract investment.

What exactly is changing?

The change, in effect since the first days of September, affects how yield spreads, known as spreads, are calculated and published for countries included in the EMBI indices, including Ecuador. The previous indicator measured the spread needed to equalize the value of sovereign bond cash flows with their market price. The new methodology, by contrast, combines the spreads of the various bonds that make up the index and assigns them a weighting based on their importance within the market and their sensitivity to changes in interest rates.

Is the comparison with historical data lost?

No. So that citizens, markets, and authorities can continue comparing Ecuador’s country risk over time, J.P. Morgan recommended using the entire historical series, recalculated under the new methodology. The firm reported that these new metrics include historical information dating back to the start of each index, making it possible to maintain consistent series for analysis and comparison purposes.

The BCE reaffirms its commitment to the transparency, quality, and comparability of the statistical information it makes available to authorities, markets, and the general public.

To review the updated country risk indicator, please visit the following link:
https://contenido.bce.fin.ec/wp-content/uploads/ESTADISTICAS-ECONOMICAS/indicadores/RiesgoPais.html

Strategic Communications Sub-Directorate – Directorate of Economic Studies and Statistics