The Broad Sovereign Downgrade
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
The Wilder View…Economonitors
Note that Brad DeLong had a piece about the shortage of highest quality investments now. As the piece points out it will only get worse. It would be interesting to make a chart of size of each slice i.e. the total amount of bonds outstanding in each slice. For example the Swiss may remain AAA but they don’t have enough bonds to make up the demand.
steve roth should make note of this; it ties in to the david beckworth post we discussed on his thread, and his comment about randy’s wrays discovery at beckworth’s blog…