Sovereign Credit Rating

A sovereign credit rating is an agency's assessment of a government's ability and willingness to repay its debt, expressed on a letter scale with an accompanying outlook. It feeds directly into the yield investors demand to hold that government's bonds, and through the yield differential it feeds into the currency. Markets usually price a change before it is announced, so the reaction to a downgrade is often smaller than expected — and the outlook revision that precedes it can move more than the rating action itself. The exception is a downgrade that crosses the investment-grade boundary, because some funds are mandated to sell regardless of price.