Moody’s Seeks Feedback on Changes to Its Sovereign Rating Method
Moody’s Investors Service is seeking feedback on changes to the way it rates governments to boost transparency after being criticized for its methodology.
The proposed changes will place more importance on economic growth and event risk of countries among its metrics, the world’s second-largest credit-rating company said in a statement today. The system will continue to focus on a nation’s institutional and fiscal strength, it said.
In the past year, ratings companies have been criticized for issuing sovereign-debt downgrades that countries including Portugal, Greece and Ireland say triggered their need for bailouts from the European Union and the International Monetary Fund. Investors ignored 56 percent of Moody’s rating and outlook changes this year, data compiled by Bloomberg showed.
The proposed amendments “are aimed at further increasing the transparency and forward-looking nature of Moody’s current approach,” it said today. Feedback will be received until Feb. 1, 2013, it said, adding that it does not expect any revisions of current ratings when the changes are implemented.
Yields on sovereign securities moved in the opposite direction from what ratings by Moody’s and Standard and Poor’s suggested in 53 percent of the 32 upgrades, downgrades and changes in credit outlook this year, according to data compiled by Bloomberg.
While Moody’s and S&P face legal proceedings and increased regulation after contributing to the worst financial calamity since the Great Depression, politicians cite the grades as one reason for austerity.
Moody’s has downgraded 6.4 government ratings for every upgrade this year in the U.S. and Europe, the highest ratio since at least 2002, Bloomberg data show. S&P, Moody’s and Fitch Ratings, a unit of Paris-based Fimalac SA, provided more than 99 percent of rankings of government, municipal, and sovereign debt and 96 percent of all outstanding grades last year, according to a Nov. 15 U.S. Securities and Exchange Commission report.
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