Sovereign credit ratings during the COVID-19 pandemic.
Yen Tran, Huong Vu, Patrycja Klusak, Moritz Kraemer, Tri Hoang
Author Information
Yen Tran: University of Aberdeen, King's College, UK.
Huong Vu: University of Aberdeen, King's College, UK.
Patrycja Klusak: Norwich Business School, University of East Anglia and Bennett Institute for Public Policy, University of Cambridge, UK.
Moritz Kraemer: Goethe-University, Frankfurt, Germany and Centre for Sustainable Finance, SOAS, University of London, UK.
Tri Hoang: School of Finance, University of Economics, Ho Chi Minh City, Vietnam and Faculty of Finance and Commerce, Ho Chi Minh City University of Technology (HUTECH), Viet Nam.
Using 603 sovereign rating actions by the three leading global rating agencies between January 2020 and March 2021, this paper shows that the severity of sovereign ratings actions is not directly affected by the intensity of the COVID-19 health crisis (proxied by case and mortality rates) but through a mechanism of its negative economic repercussions such as the economic outlook of a country and governments' response to the health crisis. Contrary to expectations, credit rating agencies pursued mostly a business-as-usual approach and reviewed sovereign ratings when they were due for regulatory purposes rather than in response to the rapid developments of the pandemic. Despite their limited reaction to the ongoing pandemic, sovereign rating news from S&P and Moody's still conveyed price-relevant information to the bond markets.
