A Review of S&P's Current Country Ratings

The three big rating agencies, Standard and Poor's (S&P), Fitch and Moody’s have been been under fire lately for their role as one of the main enablers of the credit crisis. Many of the derivative products such as MBS were assigned the AAA rating by these agencies when in fact the underlying mortgages for those securities were sub-prime. Some have suggested that these agencies be regulated and their methodology of rating securities be made open to the public.

Despite all these issues, the big three have survived intact and continue to wield tremendous power with their ratings of various products including sovereign debt. For example, last month S&P downgraded its outlook on UK from stable to negative for the first time since 1978. It must be noted however S&P did not downgrade UK’s debt which still stands at AAA. As a result of the downgrade, the British pound fell to $1.5514 from $1.5817.

In this post, lets take a look at the current ratings for many countries. The highest rating (best) is AAA and the worst is C. Investment-grade ratings are AAA, AA, A and BBB. All ratings below BBB are non-investment grade(junk). Source: Wikipedia

The countries which have the coveted triple-A rating are:

USA, Australia, New Zealand, Austria, Denmark,Germany, Finland, France, Isle of Man, Principality of Liechtenstein, Luxembourg, Norway, The Netherlands, Sweden, Switzerland, the UK , Canada and Singapore.

As we can see from above, all these countries are in Europe or North America with the exception of Singapore, Australia and NZ. Even with huge deficits of the US, S&P still gives it the AAA rating. Pimco’s Bill Gross recently stated that the US will ultimately loose its AAA rating. However Moody’s reaffirmed USA’s AAA rating after Gross’s statement. On a similar note, Moody’s and Fitch did not downgrade the outlook for UK when S&P downgraded it last month.It remains to be seen if the USA and UK will continue to maintain their AAA ratings.

Ratings of select countries:

Country	Rating
Russia	BBB+
Spain	AA+
Greece	A-
Ireland	AA+
Italy	A+
Latvia	BB+
China	A+
India	BBB-
Malaysia	A+
Pakistan	CCC+
Argentina	B-
Brazil	BBB+
Chile	AA
Peru	BBB+
Colombia	BBB+
Mexico	A+

Source: S&P

Among the BRIC countries, S&P assigns equal rating to both Brazil and Russia. India gets BBB-. However China has the higher A+ rating. War-torn Pakistan gets one of the worst possible ratings with CCC+.

Comments

[coreopsis:]

Anyone who assigns the slightest weight to these ratings is taking their life into their own hands. This author doesn't understand the basic mechanism of sovereign ratings...who does he think pays for these ratings? The secondary and new issue debt market prices the 'real' rating, and I got news for you....Spain and Ireland ain't AA+.

Jun 07 10:51 AM

[CARMEL:]

VERY INTERESTING FACTUAL COLUMN.

YOU NOTED THE CHANGE IN BRITAIN'S POUND WHEN ITS RATING WAS THREATENED.
ARE THE RATINGS REFLECTED IN THE BOND RATINGS FOR CORPORATIONS IN THE OTHER COUNTRIES? OR ANY OTHER WAY ?

Jun 07 01:56 PM

[Observer45:]

Who rates the 3 raters? Since they are obviously bias in their views it is about time that they be exposed. I am surprised too that the people who lost billions believing their ratings are not suing.

Jun 09 02:00 AM