Being stripped of one's investment grade credit rating is a chastening moment for any government, but the crushing economic impact of the coronavirus, and for some the oil market crash, are putting at least half a dozen countries at risk.
South Africa, long a likely victim, was demoted to 'junk' by Moody's on Friday, and now that the virus has tipped it over the edge, the focus is on who might be next.
There is no shortage of candidates.
Deep recessions and the cost of bolstering health care systems and bailing out firms is sending debt levels soaring from Italy to India where ratings are already on the low rungs of investment grade.
S&P Global's mass scalping of oil producers last week has left Colombia just one notch from junk and Mexico, with its $130 billion bond market, just two cuts away.
"This a very expensive fiscal exercise," fund manager Eaton Vance's head of country research Marshall Stocker, said of the epidemic. "In every way it is going to challenge debt ratings."
Becoming a 'fallen angel' - as a downgrade to junk is known in rating agency parlance - can set off a wave of problems.
It automatically excludes the country's bonds from certain high-profile investment indexes which means conservative funds - active managers as well as passive "trackers" - are no longer able to buy and sell them. It can cut the bonds' value as collateral in central bank funding operations too.
Credit default swaps (CDS), which can be used to insure against debt problems, currently foresee Mexico, India, Indonesia and Colombia all being demoted to junk, according to an S&P Capital model called the Market Derived Signal Score.
The model also has Italy showing as one cut away, rather than the two that its BBB S&P rating actually represents, and A- grade Saudi Arabia too as being only one step away rather than four.
Morgan Stanley doesn't expect any more moves into junk this year, but its strategist Simon Waever points to cuts to junk being priced into bond markets for both Colombia and Mexico, noting that the anticipation of a move to non-investment grade tends to do more damage than the actual cut.
Brazil was estimated to have seen over $20 billion yanked out of its markets when it lost investment grade in 2015.
"The majority of the (bond yield) spread widening happens before the downgrade. Then when the downgrade comes there is a bit more but then it stops and starts to recover.
"For Mexico and Colombia they (bond spreads) are already pricing these downgrades coming," Waever said.
Morgan Stanley's European analysts have also pinpointed Italy as another potential downgrade risk if rating agencies turn more cautious.
S&P and Fitch both have negative outlooks on their BBB Italy ratings. S&P has warned of a 10% euro zone economic contraction if lockdowns last, though it has also stressed the importance to Italy of the European Central Bank's bond buying support.
S&P's former head of sovereign ratings, Moritz Kraemer, who led the firm's mass downgrades during the euro zone debt crisis, has come up with some stark calculations.
Aggregate government debt in the euro zone shot up from 65% to 90% of GDP between 2007 and 2012, and sovereign ratings fell around three notches on average.
Kraemer sees euro zone debt topping 100% this year and Italy, which has been hit the hardest by COVID-19 and is also Europe's largest debtor, faring worse.
A "10/10" scenario in which an economy contracts 10% this year and its budget deficit worsens by 10 percentage points of GDP, would see Italy's debt spike from 130% to 158% this year and to 167% by the end of 2022.
If the same happened in France, its debt rate would be 135%, Portugal’s 144% and Spain’s 129%.
"The deterioration of public finances is likely to turn out worse now than during the euro area crisis," Kraemer said.
"With the backdrop of the devastating scale of the human tragedy and the outsized economic repercussions threatening Italy, the scenario of the sovereign slipping into speculative grade can no longer be easily dismissed."
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