In this paper we use a reduced form model for the analysis of Portfolio Credit Risk. For this purpose, we fit a Dynamic Factor model, DF, to a large dataset of default rates proxies and macro (May 2007). In particular, the authors wish to thank Claudia Girardone, Lucia Alessi, Matteo Barigozzi and Marco Capasso, Stephan Kessler, Ana Maria Fuertes, for helpful comments. All the computations have been carried using Gauss, with the exception of the pooled unit root test on the idiosyncratic component of the factor model for which we used the MATLAB routine developed by Serena Ng. The views in this paper are those of the authors. The usual disclaimer applies: all remaining errors are the sole responsibility of the authors.2

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