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04 June 2023

S&P sees more sovereign downgrades this year


By Reuters

The head of sovereign ratings at Standard & Poor's said he expected more sovereign ratings downgrades than upgrades this year and flagged financial markets' concern about the health of public finances.

Debt management agency chiefs from Japan, Germany, France, and Britain acknowledged a huge amount of borrowing would be needed to fund financial rescues and economic stimulus packages but showed no concern about their ability to do so.

David Beers, head of sovereign ratings at Standard & Poor's said on the sidelines of a debt conference in London that the weakness of the global economy could be expected to have an impact on some countries' credit ratings.

"There were more [sovereign] downgrades than upgrades last year and we expect that margin to widen this year," he said, comments which boosted bonds and the dollar and caused stocks to trim gains.

"At the high end [triple-A to single-A rated sovereigns] at the moment, there is something of a disconnect between the CDS [credit default swaps] story and the debt market," he added.

The high end of the sovereign credit default swap market is relatively young compared with the emerging market end, and is less liquid, he said.

"It is registering concern and uncertainty about what's happening fiscally and the potential challenges governments are facing. Whether it turns out to be an accurate assessment of default risk we'll have to wait and see."

His comments were made on the sidelines of a conference at which debt management agency officials from Germany, France and Japan said they expected to borrow more this year than last.

"Last year I had to fund €213 billion (Dh1trn), this year it's going to be €323bn," Carl Heinz Daube, managing director of the German Finance Agency, said in panel discussion.

His French counterpart also expected to increase issuance this year compared with 2008.

"I'm sitting on €1 trillion of debt, around 50 per cent of French GDP," Philippe Mills, the head of Agence France Tresor, France's debt management office, told the same panel.

"Gross issuance both from bills and bonds last year was €270bn and this year I'm forecasting to borrow €330bn from both bills and bonds."

However, these officials showed few signs of concern about the market's ability or willingness to buy their paper.