Sovereign Credit Risk and the Cost of COVID

The risk of a US Government shutdown is focusing attention on Sovereign credit risk.  While various sleights of hand (such as daily changes to bond maturities) are possible, there remains a small but significant risk to US Treasury bond payments in October.  A missed payment – even if it is only deferred – would be a major market event.  S&P famously downgraded the US to AA+ in 2011 under similar circumstances, and it has never moved it back.  Fitch currently have a negative outlook on their AAA rating for the US.

But the broader issue is how Governments around the world handle the cost of COVID [please continue below to access full report].

Figure 1: Two-Year Trends in Sovereign Credit Risk

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    Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.