bonds, ratingIf a rating agency downgrades the rating of a country, it can be expected that the trust in government bonds of this country will be reduced. Besides this psychological aspect, I want to know how these ratings will affect the country from a legal perspective.
Are there any laws or regulations that will force certain actions, depending on the rating of the country? Or is the power of those rating agencies simply based on the trust people have in their judgment?
Ratings companies are generally independent of the entities they are rating. I know of no country with any laws that require that any rating agency’s scores be considered as a concrete score. And I know of no country that has laws that require that it maintain a certain debt rating with any of these independent entities.
The agencies rate these countries debts as a tool for their customers investing decisions. It is in their interest to provide an accurate evaluation of the risks of investing in a countries debt. A dishonest evaluation tarnishes the companies credibility and drives customers away.
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