CFA Level I · CFA Level I Exam · Credit Analysis for Government Issuers
Which statement about sovereign credit ratings from rating agencies is most accurate?
Ratings are opinions about default risk, and agencies often signal a possible change through an outlook or watch status before altering the rating. They do not guarantee bond prices, and a sovereign rating frequently constrains the ratings of domestic issuers rather than leaving them unaffected.
- AA sovereign rating is generally considered a ceiling that never limits ratings of domestic issuers.
- BRatings are opinions of default risk, and agencies may change an outlook before changing the rating itself.Correct
- CRatings are guarantees that bond prices will not fall after the rating is assigned.
Explanation
Ratings are opinions on credit risk, not price guarantees. Agencies signal likely direction through outlooks or watch placements before a change. Sovereign ratings often constrain the ratings of domestic issuers, so the first option is wrong.
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