Friday, March 3, 2017

3/3/17: Sovereign & Corporate Credit Ratings: Slow Motion Disaster Spectacle


Recently, I wrote about the latest Fitch Ratings data showing a dramatic decline in the number of AAA-rated sovereigns over 2016 (see: http://trueeconomics.blogspot.com/2017/02/10217-sovereign-debt-bubble-methane.html). Now, take a look at the Fitch's latest analysis of the trends in A and better rated sovereigns:


Per Fitch: "The proportion of 'A-' and higher ratings in Fitch's global portfolio of sovereigns, corporates and banks remains well below the pre financial-crisis level and could fall further over the next couple of years as the balance of ratings outlooks has deteriorated."

Some numbers:

  • In sovereign ratings, the proportion of 'AAA' sovereigns was down to below 10% at the end of 2016, marking its lowest-ever level. "Around 36% of the portfolio is rated in the 'A' to 'AAA' categories, down from 48% at the end of 2006 while 27% is rated 'B+' or below, compared to 20% in 2006."
  • Fitch's sovereign ratings also "have the greatest share of negative outlooks on a net basis, at 21%. This suggests downgrades could outnumber upgrades by a wide margin" going forward.
  • In corporate ratings, "the proportion of corporate ratings in the 'A' to 'AAA' categories has dropped to 20% from 30% over the last decade, but unlike sovereigns the proportion rated 'B+' and below has only ticked up by 1 percentage point. Instead ratings have become increasingly compressed in the 'BB' and 'BBB' categories."
  • "Financial institutions, which have historically had a bigger share of high investment grade ratings, have seen the proportion of 'A' to 'AAA' category ratings slip to 39% from 53%."
  • "The trend seems set to worsen, as a net 11% of financial institution ratings outlooks were negative at end-2016, driven largely by outlooks on emerging-market banks, which themselves often reflect the outlooks of their sovereign."


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