You’re thinking of buying a sovereign bond, a.k.a. a government-backed bond. The government tells you they’re solid; they’re totally creditworthy, and will definitely pay you back. But are they telling the truth, or are they selling snake oil? Better look up their sovereign credit rating.
A sovereign credit rating is an independent measure of a nation’s creditworthiness, which can be used to compare nations. In the same way that you have to give a lender your FICO score before they decide how high of a credit limit to give you...or whether or not you qualify for a mortgage...you can look up a nation’s sovereign credit rating. Basically their FICO score.
Unlike your FICO, factors that affect sovereign credit ratings include political craziness, a nation’s debt and defaulting profile, economic growth, and other economic indicators. For bigwig nations, sovereign credit rating isn’t a big deal, because their currencies are strong. Except for in 2008...nobody’s sovereign credit rating was looking too good in 2008, especially Greece’s. For nations farther down the economic ladder, their sovereign credit rating is important. The better their rating, the more capital they can attract from foreign investors.
Where can you find these sovereign credit ratings? Standard & Poor’s, Moody’s, and Fitch are the largest agencies that independently score nations’ creditworthiness.
Related or Semi-related Video
Finance: What is the Credit Rating Agenc...4 Views
Finance allah shmoop what is the credit rating agency reform
act of two thousand six otherwise known as crack are
out out something like that All right yeah that's How
the real pros said anyway this act was meant to
improve the quality of company credit ratings like a blindfold
and dartboard should not be involved in making up are
you know coming up with corporate credit ratings Well the
law was ironically enacted in the hope that we would
avoid nightmares like the subprime mortgage crisis that almost brought
down the finances of while the entire country in world
And yes it worked in the same way that a
scale works in an embarrassing episode of the biggest loser
The idea was that the big three agencies moody's s
and p and fitch were colluding with each other and
raiding every security as a okay sort of the same
way wall street cell site analysts were leaned upon in
the nineties by bankers who paid them to rate every
company of strong by so that the companies would favor
the investment banks when doing lucrative secondary offerings and other
personal wealth management services for the founders and senior executives
Newly ridge from you know aipo booty The big three
then produced a product that wasn't reflective of the real
risks inherent in the marketplace Basically they had been labeling
pink slime and hot dog meat as great a sirloin
Yeah well the act made it much easier for smaller
firms to compete for business by doing high quality research
and not being afraid to give bad ratings tow bad
money butchers will The credit rating agency reform act of
o sixth gives both businesses and the government the tools
they need to fight off the shady hucksters of the
world And make sure the pink slime never you know 00:01:55.443 --> [endTime] such a cz your plate financially
Up Next
What are credit ratings and how are they interpreted? Credit ratings describe a borrower’s likelihood to pay back their debts; it’s a look at h...