What happens when Moody’s downgrades?

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Dunkel 0 Comments

Do you know what happens to a country when it get downgraded by Moody’s, Fitch or S&P? Is it the same thing as when they downgrade a corporate bond for example?

1 Answer

score 0 · Answer 1 · 2012-12-02T20:53:54+00:00

There is more than one credit agency. The three most well-known are
1. Moody’s
2. Fitch
3. Standard and Poor’s

When any one of these agencies downgrade a bond (debt security), it means that they consider it as less creditworthy. In other words, they consider that the probability that the bond issuer to be unable to pay its debt has increased. The result of a downgrade is that the bond becomes riskier and therefore, the investors require higher returns (increased interest rate) in order to lend the money (buy the bonds) which in return makes the cost of raising finance for the debt issuer higher.