Monday, August 15, 2011

S&P's track record on sovereign risk

Not pretty, reports WSJ which did some research covering the last 35 years.  If a government is rated single-A or better, the news is good -- none defaulted over this time period.  But the ratings do a poor job discriminating in the B range.  The best example: Brazil and Argentina were both rated double B minus in January 2001.  One year later, Argentina defaulted on its debt whereas Brazil has grown steadily over the last 10 years. 

In practice, the bond market forces default-probable countries to pay an interest rate premium.  So what are the ratings agencies really doing to create value when they assess sovereign risk?


  1. Perhaps the question is "what are the ratings agencies doing to create value?"

  2. Replies
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