Saturday, March 26, 2011

How Fitch, Moody's and S&P rate each country's credit rating

by Simon Rogers and Ami Sedghi


March 25, 2011

Earlier this month Portugal had their credit rating slashed from A1 to A3 after Moody's stated concerns over the country's subdued growth for the next few years.

Greece have also had their ratings re-assessed with Moody's bringing their rating down to B1 amidst furious opposition from the Greek government.

So, who are the ratings agencies? The big three agencies are Fitch, Moody's and Standard & Poors. What they do is assess how likely a borrower is to be able to repay its debts and help those trading debt contracts in the secondary market.

That means for those trading debt contracts such as treasury gilts after they've been issued, ratings agencies help assess a fair price to charge. Ratings agencies have been criticised for having too much clout in jittery markets during the financial crisis. They were widely attacked for failing to warn of the risks posed by certain securities, in particular mortgage-backed securities.


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