Sovereign Debt Ratings Keep Proving Worthless

If ever there was an investment belying the prevailing assumption of high-risk it would be Hellenic Republic debt, which over the past five years delivered a return of 14%, the highest among sovereign borrowers with investment-grade credit ratings. What’s unusual about that is Greece was only belatedly upgraded by S&P Global Ratings in October to BBB-, or the lowest rung of what is considered high grade. The takeaway is that no country better demonstrates the futility of using traditional ratings of creditworthiness as anything but a contrary indicator than Greece. Fitch Ratings similarly elevated the nation in December from a high-yield, high-risk status. Moody's Investors Service for some reason still considers its finances junk.

Notwithstanding the predominance of ratings as the supposed arbiter of what's safe and secure, Greece raised money the past several years at a lower cost than investment-grade rated countries on average, according to data compiled by Bloomberg. And in May, for the first time in the past decade it fetched a price high enough and yield low enough to be considered in the collective wisdom of bond investors similar to a borrower rated A, or five levels above where it was graded at the time, the data also show. Market prices show Greece would be able to borrow right now at an interest rate about 18 basis points less than countries rated AA, or seven levels higher than its official rating.