Sovereign Credit Risk

Susan K. Schroeder

Chapter 4 in Public Credit Rating Agencies, 2015, pp 73-104 from Palgrave Macmillan

Abstract: Abstract Credit rating agencies perform an important service to capital markets by collecting and disseminating information about the (relative) credit quality of potential borrowers and risks associated with their debt instruments. They facilitate the creation of liquidity, an important feature of corporate and sovereign bond markets. Recent criticisms of the credit rating agencies have focused on their evaluations of asset-backed securities. The sovereign debt crisis (2008–2012) illustrates how the rating industry can influence financial market stability through changes to ratings on sovereign debt. Iceland was downgraded in 2008; Greece, Ireland, and Portugal in 2009; Spain and Italy in 2010 and 2011, respectively; and, the United States in 2011. In early 2012, Standard & Poor’s further downgraded the sovereign debt of Portugal, Italy, Spain, France, and Greece. Not all of these sovereigns exhibited weak fiscal positions prior to their downgrades, although most carried sizeable debt-to-GDP ratios. The pressure of propping up both flagging economies and/or banking sectors threw fiscal positions, strong or weak, of these governments into unhealthy territories, according to EMU guidelines, the rating agencies, and the IMF.

Keywords: Fiscal Policy; Rational Expectation; Credit Default Swap; Sovereign Debt; Credit Default Swap Spread (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-35911-7_4

Ordering information: This item can be ordered from
http://www.palgrave.com/9781137359117

DOI: 10.1057/9781137359117_4

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().