Turbulent Year Ahead for Sovereign Debt Issuers
As concerns mount as to whether traditionally rock-solid issuers of sovereign debt, including the United Kingdom and the United States, can hold onto their Aaa ratings, we are pleased to offer a complimentary download via the AlacraStore of Moody’s Sovereign Risk: Review 2009 & Outlook 2010.
Selected Highlights:
As the global economic recovery attains a more solid footing, 2010 will at best see a ―normalization and at worst a severe tightening in government financing conditions. Long-term interest rates may increase more rapidly than expected because of an over-reaction to economic news, which we believe will be mildly positive overall. Moreover, the slow unwinding of quantitative easing will accelerate this credit repricing process.
- The end of exceptionally low financing conditions will expose the true cost of the crisis on government debt affordability across the world.
Aaa governments will probably not have the luxury of waiting for the recovery to be secured before announcing and perhaps also implementing credible fiscal consolidation programs.
- As most governments simply cannot afford another financial crisis, they will attempt to ring-fence their balance sheets from selected contingent liabilities. This could in some cases create disorderly market conditions.
- EMU membership will protect some countries against liquidity risk but not against long-term insolvency risk.
- Despite a slow process of global sovereign risk convergence – i.e. a narrowing of the ratings gap between rich and poorer G20 countries – BRIC countries are unlikely to replace the large Aaas’ role as anchors to the system any time soon.
A further theme identified by Moody’s is that the crisis has once again revealed the dangers of financial globalization for emerging markets — namely, the upside of the recurrence of asset price inflation after the downside of precipitous outflows of capital. However, the arsenal of policy levers has not expanded.
The full report Sovereign Risk: Review 2009 & Outlook 2010 — Fasten Your Seat Belts: Tumultuous Times Ahead has been made available for free download to Research Recap users for 30 days by special arrangement with Moody’s, an Alacra content partner. (After 30 days the report will revert to its regular AlacraStore price of $550.00)
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
