Fitch Downgrades United Kingdom

Fitch Ratings has downgraded the United Kingdom's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'AA+' from 'AAA'. The Outlook is Stable. At the same time, the agency has affirmed the UK's Short-term foreign currency rating at 'F1+' and the Country Ceiling at 'AAA'.

The rating actions follow the conclusion of the review of the UK's sovereign ratings initiated on 22 March and resolve the Rating Watch Negative. The previous Negative Outlook on the UK's sovereign ratings had been in place since 14 March 2012.

The downgrade of the UK's sovereign ratings primarily reflects a weaker economic and fiscal outlook and hence the upward revision to Fitch's medium-term projections for UK budget deficits and government debt. Despite the loss of its 'AAA' status, the UK's extremely strong credit profile is reflected in its 'AA+' rating and the Stable Outlook. Read more >>

Just what does a debt-laden, dysfunctional US economy have to do to get a ratings downgrade?

What exactly does a debt-laden, politically dysfunctional major economy have to do to get a ratings downgrade around here?

In 2011, the U.S. earned the ignominious distinction of being the first of several post-financial crisis era economies to be stripped of a triple-A credit rating. Yet since then, Washington has lurched from one budget crisis to the next, with no plan for arresting the growing federal debt burden.

In spite of those factors, the ratings agency triumvirate of Moody's, Fitch and Standard & Poor's — the only firm to actually mete out a U.S. downgrade thus far — have been strangely reluctant to pull the trigger on another ratings cut.

Even still, America's problems — including political paralysis, oceans of red ink and stunted growth — are mounting.

The refusal to cut the U.S. again is curious, given that the Sword of Damocles has already fallen on both Britain and France — the euro zone's second-largest economy, which has been downgraded on two separate occasions by two different ratings firms. Read more >>

Fitch cuts Sony, Panasonic debt to junk

Fitch Ratings downgraded Sony and Panasonic debt to junk status Thursday and said the ailing Japan-based consumer electronic makers both needed radical restructuring to improve their prospects.
Panasonic's rating was cut to BB from BBB-, while Sony was moved to BB- from BBB-, with a negative outlook. Both companies now carry speculative, or junk, ratings.

The downgrades are the latest in a string for Sony and Panasonic, which have been haemorrhaging money and struggling to find positive momentum.

The companies, once the crown jewels of the high-tech Japanese economy, have been hit in recent years by a strong yen and weak demand for televisions. Sony now has a market cap of just more than $10 billion, and hasn't turned a profit in four years. Read more >>

Fitch Cuts Japan Debt Rating, Outlook Negative

Japan's sovereign rating was cut by one notch by Fitch on Tuesday as a political stalemate dims the chance that the country can curb its snowballing debt.

Fitch lowered Japan's long-term foreign currency rating to A plus from AA. It cut the local currency ratings to A plus from AA minus. Both were cut with a negative outlook. Fitch warned that further downgrades are possible unless the government takes new fiscal policy measures to stabilize public finances and its ratio of debt to gross domestic product.

The downgrade could serve as a chilling reminder to highly indebted countries in Europe that urgent action is needed to trim public debt and prevent concerns about sovereign debt from weighing further on the global economy. More...

Greece Bankruptcy Could Doom Euro

Dan Weil
Greece’s debt has just been downgraded, and experts say that if the country goes belly up, the euro could be in big trouble.

"The Greek problem will be an acid test for the currency union," a senior German government official told German magazine Der Spiegel.

Fitch Ratings cut Greece’s credit rating to BBB+, the third-lowest investment grade.

Meanwhile, Standard & Poor's placed Greece's A- rating on watch for a possible downgrade, meaning it could be slashed within 60 days.

Greece is the lowest-rated country in the euro zone.

“Volatility is likely to continue for some time,” analysts at Barclays Capital wrote in a note to clients.

Greece is struggling with a weak economy and a massive debt burden.

The economy contracted 1.7 percent in the third quarter from a year earlier, and the budget deficit totals 12.7 percent of GDP.

While the government has plans to cut the gap, many analysts are skeptical.

"The likely rise in public debt to more than 120 percent of GDP next year and further to 125 percent in 2011 would leave the public finances highly exposed to shocks," Fitch analysts wrote in their report.

Experts are concerned that a Greek bankruptcy could spread to other countries in Europe.

“Greece is a whole lot more important than Dubai,” Uri Landesman, a fund manager at ING Investment Management, told Bloomberg.

“There are a lot of banks, in Europe especially, that have exposure to Greece.”

European Central Bank President Jean-Claude Trichet has said the euro-zone economy faces a rough road to recovery.

"The real economy is back to growth but we don't declare it (crisis) over. It is a bumpy road ahead, we have the sentiment that growth remains modest and we have to remain alert," Trichet said in an interview with the Europarltv, a television channel of the European Parliament.

Credit Default Swaps Linked to US, UK and Japan Double

David Oakley
Bets rise on rich country bond defaults
The mounting level of debt in the industrialised world is prompting a growing number of investors to use the derivatives market to bet on the chance of rich governments defaulting on bonds.

Public debt and CDS volumesThe volume of activity in sovereign credit default swaps – which measure the cost to insure against bond defaults – linked to the US, UK and Japan have doubled in the past year because of concerns about their public finances.

CDS volumes for Italy, which has one of the highest debt burdens of the developed economies, are now the highest for an individual country, according to the Depository Trust & Clearing Corporation.

In contrast, the outstanding volume of CDS linked to emerging nations such as Russia, Brazil, Ukraine and Indonesia have been flat or fallen in the past 12 months as investors have become less interested in trading the risks of those countries.

In the past, the CDS market for developed countries was sluggish, because few investors saw the need to buy or sell protection against a risk of default that seemed exceedingly remote.

However, rising debt levels and growing political and economic uncertainty have created a more active market, with more investors now seeking insurance. Meanwhile, many banks are prepared to offer protection in exchange for a fee.

This fee has recently jumped, since the cost to insure the debt of developed countries has increased since the summer of last year, while the cost of insuring emerging market debt has fallen.

Gary Jenkins, head of fixed income research at Evolution, said: “The biggest single risk hanging over the bond markets is the rapid rise in public debt in the industrialised world.

“If we get to a point where the market thinks the levels of debt are unsustainable, then we will see an almighty sell-off in the government bond markets, with yields soaring. Governments need to take action to cut deficits and debt.”

Fitch Solutions, the data arm of the Fitch Group, said that there was almost as much uncertainty in the CDS market about the outlook for the developed economies and their bond markets as there was for emerging economies.

Comparisons between Italy and Brazil are often used by strategists as an example of the contrasting fortunes of the developed and emerging world.

Italy’s ratio of debt to gross domestic product is forecast to rise to 127.3 per cent in 2010.

On the other hand, Brazil’s debt-to-GDP ratio is forecast to stabilise at 65.4 per cent in 2010.

Nigel Rendell, senior emerging markets strategist at RBC Capital Markets, said: “It is not surprising that investors are increasingly worried about debt in the industrialised world. Debt to GDP of more than 100 per cent is difficult to sustain.”