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Recently I’ve spent time thinking about global bond investors, especially those conservative investors that stick with the high-quality sovereigns. I’ve got news for them: The share of high-quality investment grade sovereigns (BBB- and above is investment grade) is shrinking. Some bullet points comparing ratings in December 2007 to December 2011:

  • From a sample of 76 emerging market and developed market economies, 23 sovereigns have been upgraded by S&P (I use S&P specifically, but the agencies usually move in lockstep at a lag). These upgrades span both EM and DM markets, but EM dominated with 19 upgrades overall..
  • The number of high-quality investment grade sovereigns – A- and above – fell by 6.
  • The AAA universe shrank by 2 economies – more is to come with imminent downgrades in Europe.

2007-2011 in Charts: Moving Down in Quality

2007

Vs. 2011

Source: The Broad Sovereign Debt Slide