Interpreting Sovereign Credit Rating Histories
Summary
The document explains how to interpret a country's sovereign credit ratings over time. Ratings describe a government's creditworthiness when an agency publishes them; they are not continuous measurements of past or future conditions. Agencies may issue ratings at a government's request or independently, and publication schedules can vary. If two observed dates show the same rating, treating the intervening years as unchanged is an assumption that depends on whether other rating actions occurred.
The discussion uses the United States downgrade in 2011 to illustrate that a rating reflects a point-in-time assessment. It also notes a limitation: a country may experience changing credit conditions even when agencies do not publish a new rating. For more frequent, market-based information, sovereign credit spreads can be examined over time, with default probabilities sometimes inferred from those spreads. The document offers interpretation guidance but does not provide a specific dataset or estimation procedure.
Key ideas
- Sovereign ratings describe creditworthiness at the time an agency publishes them.
- Equal ratings at two dates do not prove that the rating stayed unchanged between them.
- Agencies may update ratings irregularly or may not react to every change in underlying credit conditions.
- Sovereign credit spreads can provide a more frequent market-based view of credit quality.
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# How do I interpret the credit rating history time series? # How do I interpret the credit rating history time series? This is the best historical time series which I could find from tradingeconomics.com/malaysia/rating. It would be great if someone could answer my question. I am currently researching on the topic of credit rating. I need to use the data from the link above. However, I am not sure if I interpreted the ratings correctly. For e.g. Fitch's ratings for Malaysia in 2008 and in 2013 are A-, can I assume that from 2008 to 2013 Malaysia had A- as ratings (does it apply to other Credit Rating Agencies as well)? I am not sure if countries get rated yearly and if I could use the last rating of the year to represent the rating for a particular year? Your help is greatly appreciated! ## Answer by st19297 (score 1) https://quant.stackexchange.com/a/30974 These ratings are called sovereign credit ratings. The ratings describe the creditworthiness of a country at the time the rating is published. The rating companies such as Fitch or Standard & Poors calculate and publish the ratings either by request (e.g., from the Chinese government) or autonomously so that they can sell the ratings to their subscribers. The ratings do not reflect the entire past or the future creditworthiness of countries; instead they reflect their present creditworthiness. For example, in August 2011, Standard & Poors downgraded the US's rating from AAA to AA+, as a result of the congress' approval of raising the US debt ceiling. The AA+ rating reflected the creditworthiness of the US government at that time, not 6 months ago and not 6 months later. So, to answer your question, if from 2008 to 2013 Malaysia had A- as ratings, you may assume that it had the same rating for the whole time but that's just an assumption you can make if you are sure the country has not been rated differently during that time. Even in that case, the fact that the country has not been re-rated during that time period does not mean the country has had the same creditworthiness the whole time. It may be the case that the rating companies did not re-rate it for some reasons. ## Answer by Squirrel (score 0) https://quant.stackexchange.com/a/32841 Another option is to look at the sovereign credit spreads over time for the country - this gives a fine grained and more market based view of its credit quality over time. Deutsche Bank Research for example shows the default probabilities over time for various countries (backed out from the credit spreads).
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