ratings agencies

Ralph Atkins

So that’s it, then, until October.  The latest steps in the European Central Bank’s ”exit strategy” laid out yesterday, set out how liquidity operations will be managed until the start of the fourth quarter. So will the ECB now just sit on its hands? Possibly. It certainly does not look like they are going to need to tighten monetary policy anytime soon (current market expectations are for the first hike only in the second half of 2011).

But these are turbulent times for the eurozone, and for the guardian of Europe’s single currency. Greece’s crisis may have subsided, but it has not gone away. Policymakers, including at the ECB, know they have to look at making the monetary union function more effectively. Read more

The Indian Ministry of Finance doesn’t pull any punches: it has investigated the $5bn ratings agency industry and promptly issued twelve recommendations.

“A rating is only an opinion, albeit a very influential one,” states the reportRead more

Ralph Atkins

An outburst by Ewald Nowotny, Austria’s cerebral central bank governor, has raised an interesting prospect. Might the ECB do away with the services of ratings’ agencies and judge itself the credit-worthiness of eurozone banks’ collateral?

Late on Tuesday in Vienna , Mr Nowotny highlighted the predicament currently faced by Greece: if Moody’s follows the other rating agencies in downgrading further its assets, they could become ineligible for use in ECB liquidity operations once the pre-global financial crisis regime is restored at the end of this year. Such assets would then become worth much less – sending Greece further into a downward spiral. Read more

From Reuters:

The current situation, where Greece’s fate depends on the decision of a single credit rating agency, is not acceptable, European Central Bank Governing Council member Ewald Nowotny said on Tuesday. Read more

From Reuters:- Moody’s Investors Service has just upgraded Turkey’s government bond rating to Ba2 from Ba3, reflecting the rating agency’s growing confidence in the government’s financial shock-absorption capacity. The outlook was changed to stable from positive. Fitch moved late last year to put Turkey on BB+.

Timothy Ash, an analyst at Royal Bank of Scotland, said: “It’s a bit disappointing that Moody’s only moved one notch, as this still leaves Moody’s rating of Turkey one notch behind Egypt, which I have long failed to understand… answers on a postcard as to why Turkey should be rated behind Egypt. Obviously Moody’s was ‘inspired’ by the hugely successful eurobond issue earlier this week ($2bn placed, and $7bn in orders). Clearly, investors are voting with their feet, irrespective of the views of the ratings agencies.”

Clearly they are not, in fact, risk-free (Argentina proved this). But government bonds are nonetheless viewed as the sole risk-free asset, and banks are required to hold certain amounts of them in their portfolios. The risk-free (read: government) rate is also the basis for valuing almost all assets.

Whether this should be the case is a question posed today by Michael Gordon, former CIO of Fidelity. He argues corporate bonds might be a safer bet; some corporate bonds, after all, come with an implicit government guarantee. (Perhaps corporate bonds could be split into regular and TBTF bonds.) If the view caught on, a revolution would lie ahead for markets, involving mass revaluations and financial remodelling.

But his argument assumes all types of bond issuer are equivalent financial actors. I’m not convinced of this. Read more