In October 2010, Moody’s Investors Services reduced the credit rating assigned to Greece’s government bonds from investment grade to a speculative (junk-level) rating. At the time, Greece was considered by many to be the epicenter of the European debt crisis. The debt-laden country had already received financial support packages from the European Union and the International Monetary Fund, and had agreed to a three-year austerity and reform program intended to help the country meet its debt commitments. However, the Greek economy was experiencing a lengthy recession and many economists predicted economic contraction to worsen as governmental austerity measures began to take hold.

1. Why do agencies such as Moody’s assign credit risk ratings to government bonds?
2. Briefly explain how Moody’s analysts might go about the task of assigning a credit risk rating to Greek government debt.
3. What message should current and potential investors take from the Greek debt ratings downgrade?

  • CreatedSeptember 10, 2014
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