Conclusion

Abstract

Sovereign rating experienced two periods of high activity: the interwar years and the period since the mid-1980s. During the 1920s and 1930s, the four main credit rating agencies (Fitch, Moody’s, Poor’s, and Standard Statistics) failed to anticipate the sovereign debt crisis that broke out in 1931, and they overreacted by making massive downgrades well into 1933. Even so, the very low default rates for sovereign bonds rated in the first two rating classes indicate that the four agencies successfully discriminated among foreign government bonds. Because there were so few rated sovereigns that defaulted during the period 1986–2010, it is not possible to make reliable comparisons between the modern era’s sovereign ratings and those issued during the interwar years. Despite this reserve, an examination of default rates and accuracy ratios indicates (not surprisingly) that the ratings issued by Fitch, Moody’s, and S&P during the past 25 years have been more accurate than those from the interwar period.