Monday 15 November 2010

Sovereign debt default risk

On October 7, CMA DataVision released their third-quarter report on the credit ratings of sovereign countries. CMA's ratings are worked out by looking at what the credit market charges for insuring against default. This market-based marking is different from the assessments of Standard and Poor's, Moody's, Fitch etc, who are paid by the organisations they rate and whose reputation has been brought into question after the events of 2008.

On page 4, CMA says that four of the 10 most risky nations are in the EU (Greece, Ireland, Portugal, Romania). It's worth remembering that a fifth on that list, Ukraine, is eager to join the EU. (For those who want to know about all the "PIGS", Spain is 21st most risky.) How is the currency and banking of the European Union meant to contain these problems?

The UK is rated 59th most risky (or 13th safest), with an implied credit rating of aa+ (as opposed to the official AAA rating that has helped to keep down the cost of our credit).

Four Nordic countries lead the list of securest debt: Norway, Finland, Sweden and Denmark. Only four other countries share their "implied AAA" rating: Germany, Switzerland, the Netherlands and Australia.

The United States has been downgraded this quarter, from "aaa" to "aa+" - the same as for the United Kingdom.

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