Countries don’t like bad news about their creditworthiness
WHEN the subprime crisis broke in 2007, credit-rating agencies were among the first groups to take the blame. Critics argued that investors had drawn false comfort from the AAA ratings that the agencies handed out on complex packages of mortgage-related debt. Furthermore, the raters were hamstrung by the conflicts of interest inherent in being paid by issuers to assess their bonds. Never again, it was solemnly proclaimed, should the markets rely on the word of the agencies.
Now that investor attention has shifted to sovereign risk, the three big agencies (Fitch, Moody’s and Standard & Poor’s) once more find themselves at the centre of the action. Upgrades of sovereign debt exceeded downgrades in every year between 1999 and 2007. That has changed as a result of the financial crisis (see chart). ...