What An S&P Sovereign Debt Rating Is Worth
Look at the chart - AAA S&P rated Australia's 10 year bonds are yielding 4.9%. A- S&P rated Malaysia's 10 year bonds are yielding 3.9%. AA- rated Japan's 10 year bonds, and currently holding a negative watch from S&P, are paying 1.1%. AA- China's 10 year bonds, currently S&P rated stable, are yielding 4.1%.
While as a general matter, the countries S&P has chosen to rate AAA face lower interest rates than countries with lower ratings, there is so much randomness that it is difficult to attribute any cause to S&P ratings. I think no one seems to pay attention to S&P on sovereign debt ratings. More . . .
I think the reason for this is that S&P gives out ratings in subjective ways, on a country by country basis. There is no apples to apples comparison of creditworthiness between nations. It's more along the lines of S&P does not like what a particular country is doing therefore it will downgrade their rating, irrespective of an actual creditworthiness analysis.
I used to think that even if S&P ratings were inaccurate, even a drop in an inaccurate system would reflect some effect on the interest rate a country might pay. But now I'm not so sure.
S&P is threatening to downgrade US debt if it is unhappy with the debt ceiling deal that is cut. I wonder if they will do it. My bet is no, because it would reveal that S&P sovereign debt ratings are meaningless with regard to the United States. I don't think they'll take a chance on that.
Speaking for me only
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