Uncertain Future for Slovenia’s Debt

Kenneth A. Orchard, CFA
Portfolio Manager, European Fixed Income
July 2013
As we anticipated, there have been very few sovereign downgrades so far compared with 2011 and 2012. Based on the (unweighted) average of the three major credit ratings agencies, the eurozone sovereign rating remains unchanged at A.

Moody’s has taken only one rating action on a eurozone sovereign in 2013, downgrading Slovenia to Ba1 from Baa2. S&P also downgraded Slovenia (to A- from A) in February 2013, but they also moved the outlooks on Ireland, Portugal and Austria to stable from negative. Italy and Slovenia were downgraded by Fitch to BBB+ in March and May 2013, respectively. Most recently in May 2013, Fitch upgraded Greece’s credit rating to B- from CCC, citing improvements to its budget and current account deficits and economic stabilisation.

In the second half of this year, Slovenia could be downgraded by S&P, but we expect the country to remain investment grade. Moody’s could move its outlook on Ireland from negative to stable. Moody’s is the only agency to rate Ireland as sub-investment grade. Eventually, Moody’s should upgrade Ireland to investment grade, but this is more likely to happen in late 2014.



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