EconoMonitor

The Wilder View

The Broad Sovereign Downgrade

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 (EM) and developed market (DM) 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

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Aaron Menenberg is Foreign Policy and Energy analyst, and a Future Leader with Foreign Policy Initiative. He also co-hosts Podlitical Risk (@podliticalrisk). He is a graduate student in international relations at The Maxwell School of Syracuse University. Previously he has worked at Praescient Analytics, The Hudson Institute, for the Israeli Ministry of Defense, and at the IBM Corporation. The views expressed are his own, and you can follow him on Twitter @AaronMenenberg. He welcomes questions and comments at menenbergaaron@gmail.com.