The Future of "AAA" Ratings: Who Has It & Who Will Lose It

Governments & Sovereign Nations, “Under ‘AAA’ We Stand!”

Moody’s lists its largest “Aaa” rating sovereign debt issuers as the United States, France, Germany, and the United Kingdom.  Moody’s noted just in January that, despite the rising debt levels, these countries still have debt metrics compatible with their Aaa ratings. Three listed as “Aaa” in the Asia-Pacific region are Australia, New Zealand and Singapore.

In December 2010,  Moody’s noted that unless there are offsetting measures to the extensions of the Bush Tax Cuts, the overall stimulus package would be “credit negative” for the U.S.  Moody’s also noted that it increases the likelihood of a negative outlook on the US government’s “Aaa” rating during the next two years.

China is supposed to be the growth engine of the world and many feel that it has the best currency if it were to de-peg from the U.S. dollar.  Even after a recent S&P ratings upgrade, the sovereign nation debt from The Peoples Republic of China is rated as “AA-.”  That is still well above the “BBB” minimum hurdle for an “investment grade,” but it is not yet at the safest “AAA” rating.

S&P rates  fewer than 20 nations as “AAA” on all three metrics of Sovereign local currency ratings, Sovereign foreign currency ratings, and the Transfer and convertibility assessment. These are (as of December 2010) listed as Australia, Austria, Canada, Denmark, Finland, France, Germany, Guernsey, Isle of Man, Liechtenstein, Luxembourg, Netherlands, Norway, Singapore, Sweden, Switzerland, the United Kingdom, and the United States. Many nations have a “AAA” rating in one or more but not all three of the metrics, and not all the “AAA” ratings are listed as “Stable.”

The Economist also published in January 2011 in its Economist Intelligence Unit “The Country Risk Service” and it listed Norway was the only “AAA” rating under its own metrics.  The sovereign rating is meant to measure “the risk of a build-up in arrears of principal and/or interest on foreign- and/or local-currency debt that is the direct obligation of the sovereign or guaranteed by the sovereign.”  The United States was “AA” on this list, along with Canada, Denmark, Finland, Germany, Hong Kong, Netherlands, Qatar, Sweden, and Switzerland.  The Economist rating system is really more of a “living within your means” test rather than whether or not debts will ultimately be paid.  The “AAA” rating from The Economist is the capacity and commitment to honor obligations not in question under any foreseeable circumstances, while the “AA” is the capacity and commitment to honor obligations not in question.

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