Posts tagged ‘sovereign debt’

Feb 26

Moody’s Downgrades the UK: Keep Calm and Carry On

If you want Aaa-rated government debt, you’ll have to go looking to Canada, or Australia, or Germany, because late last week, ratings agency Moody’s officially downgraded the United Kingdom’s government bond rating from Aaa (their highest level) to Aa1 (their second highest level). Moody’s downgrade was based on three factors: the UK’s weak medium-term growth outlook; the impact of the weak economic outlook on the government’s fiscal consolidation plan; and the high and rising public debt burden. On the last point, Moody’s expects debt to peak at over 96% of GDP in 2016.

The downgrade wasn’t really a surprise, but it did come earlier than expected. The Office of Budget Responsibility had projected that government debt would remain over 90% of GDP for at least six years – that’s inconsistent with a triple-A rating. However, the downgrade came before the official budget was announced on March 20, which is when most figured the nudge downward would have come. Read more

Oct 18

Spain Clings to Investment-Grade Ratings

Spain seems to have survived the most recent scrutiny by ratings agencies Moody’s and Standard & Poor’s. Last week, S&P hit Spain with a two-notch downgrade, but still kept them at investment grade…just barely though. Then this week, Moody’s confirmed Spain’s government bond rating at Baa3. This concluded a review for a possible downgrade that began back in June.

When moving Spain from BBB+ to BBB-, S&P focused on five factors: Spain’s delay in asking for ESM assistance, a deepening recession, Germany’s recent comments that any direct bank recapitalization by the ESM once the banking union is set up should exclude “legacy assets,” a deteriorating political climate, and likely fiscal slippage. Moody’s decision to confirm the Baa3 rating was based on three stated factors: a probable request for a precautionary credit line from the ESM (they viewed this as a positive), the government’s commitment to fiscal and structural reforms, and progress towards recapitalizing the banks.