ratings

The eurozone economies of Greece, Portugal and Ireland are likely to avoid sovereign bond defaults because of a strong domestic investor base of local banks and pension funds that will buy their government’s debt even in times of stress, according to Moody’s.

The US rating agency says investors should not worry about losses from bond defaults in these three so-called peripheral eurozone economies, considered the weakest in the 16-nation bloc. 

Thai central bankers have a double cause for celebration today: projected Thai exports have been revised up for the rest of 2010 and ratings agency Moody’s has removed its negative outlook on the country’s Baa1 credit rating.

Today’s inflation report from the Bank of Thailand suggests an enviable track record, with “strong growth” in the second quarter “mainly driven by merchandise exports and private spending”. Thailand is not impervious to the global economy, however: the Bank speaks of weakening external demand and forecasts exports to fall back to trend in 2011. 

Determined to stay ahead of the competition, Fitch has cut Ireland’s sovereign debt rating one notch to A+, outlook negative. The three main agencies had almost all settled upon Fitch’s previous rating of AA-, with S&P’s recent cut removing its one notch difference, and Moody’s recent cut and downgrade review looking likely to cut its two notch difference. But Fitch has taken the next step, following the “greater than expected fiscal cost” of the Irish government’s bank recapitalisation plan.

Before you place too much emphasis on this, however, you might want to read a new paper from NBER. Research has found that increased competition among ratings agencies has led to lower quality corporate ratings. In one test, speculative grade firms were 7.7 times as likely to default within three years as investment grade firms when competition was low (i.e. Fitch market share is at the 25th percentile), but only 2.2 times as likely when competition was high (market share at the 75th percentile). 

As expected, Moody’s has downgraded Spain, three months after placing the sovereign on downgrade watch. Fitch and S&P downgraded Spain’s debt in late Spring, and S&P still rates Spanish debt below its peers.

Spanish debt is still rated above the rest of the PIIGS by Moody’s. PIIGS sovereign debt runs from Ba1 for Greece to Aa1 for Spain. Moody’s order runs: Greece, Portugal, Italy = Ireland, Spain. Fitch and S&P rate PIIGS’ sovereign debt in the same rough order, though at different levels. Click on the graphic to play with our interactive sovereign ratings graphic.

Ratings agency Standard & Poors has upgraded Argentina to B, the same level as Fitch and now one above Moody’s. The move follows hot on the heels of an upgrade from Fitch.

The sovereign credit rating is still well in junk territory, denoted by the grey shading in the chart, right. The highlighted green line is S&P’s historical rating for Argentina; red is Fitch and blue Moody’s. Click on the graphic to explore the full graphic, in which you can compare countries side by side.

S&P joins Fitch in placing Ireland on a sovereign rating of AA- today; Moody’s rating remains a notch higher at AA. Ireland keeps its second position in the PIIGS’ line-up, however, which runs broadly: Spain, Ireland, Italy, Portugal and then Greece. Play with the graphic below for more.

Will Moody’s, S&P and Fitch downgrade each other? The Fed is looking to end its reliance on credit ratings – possibly changing Basel rules to boot.

The Federal banking agencies* have identified their use of those ratings, and are now requesting comments on the best replacements. From the horse’s mouth: 

The current debt trajectory of the US may imperil the country’s future Aaa rating, Moody’s has said.

Steven Hess, senior credit officer at the ratings agency, told Bloomberg the US needed a strategy to tackle its deficit: “Having a clear plan certainly increases confidence and the U.S. doesn’t have that yet… the debt trajectory as it is now is something that might potentially cause us to consider whether the US is Aaa at some point in the future.” 

Ratings agency Moody’s has downgraded Ireland’s sovereign debt rating to Aa2 (stable) from Aa1 (negative). Ireland’s National Asset Management Agency (Nama), a special purpose bad-loan vehicle whose debt is fully guaranteed by the Irish government, was also downgraded to Aa2.

The action brings Moody’s rating in line with those of S&P. Fitch remains a notch below both Moody’s and S&P. Drivers for the change were given as follows: 

Ratings agency Moody’s has downgraded Portugal’s debt issuer rating from Aa2 to A1; the outlook is now stable. The short-term issuer rating is affirmed at Prime 1 with stable outlook. The action concludes a downgrade review that began on May 5. The level remains above the (temporarily lowered) BBB- required by the ECB to accept a sovereign’s bonds as collateral.

The rationale, straight from Moody’s: