Sovereign Rating Sheet

Expert

A credit rating is the assessment of the credit risk of a potential borrower or debtor. Primarily this focuses on the capacity to make repayment of the debt, and therefore implicitly a prediction of the probability or possibility of the debtor not repaying (or defaulting). Sovereign Debt Ratings are a form of credit rating, but applied to the debt of a sovereign state, or in other words, a country. The Sovereign Debt Rating is the credit worthiness of a sovereign entity, usually a national government to repay its National or Government debt. Sovereign dept ratings can play an important part in fundamental analysis.

Who decides on the Sovereign Debt Ratings

A credit rating is evaluated by credit rating agencies, who assign the above-mentioned credit rating. The main three agencies are Standard & Poor’s (S&P), Moody’s Investors Service (Moody’s) and Fitch. Of these, the first two combined control most of the global market (at least 80%).
FITCH RatingsMoodys ratings Standard and Poor's

These credit rating agencies have differing ways of scoring Sovereign Debt and below are the current scores for the larger global economies.

As well as giving the Sovereign Debt Rating, the credit rating agencies also indicate if ratings of countries are potentially about to change. “Rating Watches” signal that there is an increased likelihood of a rating change and the probable direction of any change. These are “Positive Rating Watches”, indicating a prospective upgrade or “Negative Rating Watches”, for a possible downgrade.

Why are Sovereign Debt Ratings important for trading FX?

The credit rating level of any countries Sovereign Debt can have significant impact on the foreign exchange rate of the country. A downgrade, expected downgrade or move to “Negative Rating Watch” in the Sovereign Debt Rating by any of the credit agencies would usually result in the depreciation (fall) in the currency. Conversely, an upgrade in the Sovereign Debt Rating (or anticipated upgrade) or a “Positive Rating Watch” would probably result in a currency appreciation (rise).

Sovereign Debt Rating

Fitch/S&P Moody’s
AAA Aaa
AA+ Aa1
AA Aa2
AA- Aa3
A+ A1
A A2
A- A3
BBB+ Baa1
BBB Baa2
BBB- Baa3
BB+ Ba1
BB Ba2
BB- Ba3
B B2
B+ B1
B- B3
CCC+ Caa1
CCC Caa2
CCC- Caa3
CC Ca
C C
D
F1+/A-1+ P-1
F1/A-1 P-2
F2/A-2 P-3
F3/A-3 NP
B/B
C/C
D/D

Sovereign Debt Rating for Countries

Moody’s Moody’s Outlook S&P S&P Outlook Fitch Fitch Outlook
China Aa3 stb AA- stb A+ stb
USA Aaa stb AA+ stb AAA stb
Japan A1 stb A+ stb A stb
UK Aa1 stb AAA neg AA+ stb
Germany Aaa stb AAA stb AAA stb
France Aa2 stb AA neg AA stb
Austria Aaa neg AA+ stb AA+ stb
Luxembourg Aaa stb AAA stb AAA stb
Netherlands Aaa stb AAA stb AAA stb
Finland Aaa neg AA+ neg AAA neg
Belgium Aa3 stb AA stb AA neg
Spain Baa2 pos BBB+ stb BBB+ stb
Italy Baa2 stb BBB- stb BBB+ stb
Ireland Baa1 pos A+ stb A stb
Portugal Ba1 stb BB+ stb BB+ pos
Greece Caa3 stb B- stb CCC
Lithuania A3 stb A- stb A- stb
Slovenia Baa3 stb A- pos BBB+ pos
Cyprus B1 stb BB- pos B+ pos
Slovakia A2 stb A+ stb A+ stb
EU Aaa stb AA+ neg AAA stb
ESM Aa1 stb AAA stb
EFSF Aa1 stb AA neg AA stb
ECB Aaa stb AAA stb

Editor in chief

Steve Miley has 29 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Market Chartist, the Editor-in...continued

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