Emerging Market Bonds

Sovereign credit risk resurfaced in government bonds last week as the ratings agencies took negative actions on several countries. Fitch Investor Service downgraded Greece to BBB+ from A- a day after S&P put the country on Credit Watch Negative. S&P also placed Portugal’s A+ rating on Credit Watch Negative for a downgrade and placed Spain’s AA+ rating on Outlook Negative (Outlook refers to a longer-term potential ratings direction rather than a pending ratings change). Separately, Moody’s hinted that the AAA rating of U.S. Treasuries and UK Gilts were at risk over coming years. Concern over future ability to service debts was the primary driver of the ratings actions. Emerging market bonds were not spared from the volatility as Moody’s downgraded six Dubai state-owned corporate issues in the wake of the Dubai World debt restructuring.

photo credit: jrodmanjr

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