Click to enlarge:

Source: Bloomberg BRIEF April 26, 2012

Bloomberg BRIEF had a great chart and explanation regarding about national credit ratings:

“According to CDS-implied credit ratings, renewed escalation of the European debt crisis may place Spain’s investment-grade status at risk, while France may face a downgrade to A- on S&P’s rating scale.

The composite credit rating is calculated by quantifying the three primary agencies’ ratings, where available, and averaging the results for each country. A score of one indicates the highest rating across all three companies. A score of 10 or better indicates investment grade.

The cost of five-year CDS is the amount traders are willing to pay to protect against a default on the country’s underlying debt. The cost of protecting against a Spanish default through five-year CDS has risen to about 470 basis points, which is more than 200 basis points higher than similar protection on Turkish sovereign debt which holds a non-investment grade composite rating of 11.7. Spain’s composite rating is 6.3, equivalent to A on the S&P scale. France may risk the largest nominal downgrade of the countries surveyed, with its CDS price implying a potential downgrade to 6.8, or A-, from its present composite rating of 1.3, or AAA. This would still fall within the investment grade range.

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Category: Bailouts, Credit

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

5 Responses to “Spain’s Investment-Grade Status, France’s AAA at Risk as Crisis Escalates”

  1. RW says:

    The credit rating companies don’t have a clue how to analyze sovereign debt: Their ratings of same are little better than guesswork and probably reflect political bias as much as anything else.

  2. James Cameron says:

    I’m struck by the broad range of ratings that is possible for a selected five-year CDS, with mostly economies from emerging markets in Latin America and Asia above the fitted curve, and economies from Western Europe, North America and the Middle East below. One wonders what the graph will look like in 20 or 30 years. For that matter, one wonders what it will look like in 6 or 18 months.

  3. JimRino says:

    Europe implements Austerity Budgets and prove they don’t work.

  4. DeDude says:

    So who gives the best estimate of true risk? Is it the market with their CDS or the agencies with their hocus-pocus and history of failure to predict?

  5. Finster says:

    I suggest to find out who the firm “markit” and the providers for the CDS indizes actually are, who owns them and who works with them, before you place too much trust in CDS.

    CDS are a derivative tail designed to move the “dog” bond market. There are vested interests here and though I’ll be the first to damn the ratings agencies for their rear looking incompetence, I don’t trust the CDS market further than I can throw a hedge fund manager.