Speculative-Grade sovereign rating Cycles: Sovereign debt Defaults, restructurings and resolution

Abstract

We analyse how defaults, debt restructurings and resolution affect the duration of low sovereign rating cycles in a change-point Weibull duration model setup. Using a large panel of sovereign ratings data issued by the three largest credit rating agencies, we show that sovereigns implementing nominal debt relief during defaults or with an history of debt restructurings (including those supported by multilateral institutions) or (long) exits from international capital markets hardly escape the ’curse’ of protracted speculative-grade spells. Governments also tend to discriminate between domestic and foreign agents, ’prioritising’ foreign currency defaults.