I heard today that Moody's and Fitch and left the US sovereign debt rating at AAA/Aaa, despite the downgrade from S&P to AA+. Is it common for ratings agencies to disagree on a rating? If so, is any one agency more respected or considered the standard?
Finally, how often do the agencies reevaluate sovereign debt ratings? Is S&P likely to leave their rating at AA+ for a significant period of time despite disagreement from the other agencies?
This paper provides research on exactly what you're asking about (note: link opens a PDF). I have attached part of their conclusion below:
First, while we find that the credit rating agencies often disagree, it is usually confined to one or two notches on the finer scale. Second, rating transition probabilities tend to increase as the rating level decreases across all agencies, but rating stability at lower rating levels is less for S&P than for Fitch or Moody’s. Third, we document that six variables are common determinants of all three agencies assessments of credit quality. However, the fact that a further four variables have varying importance across agencies leads us to conclude that material heterogeneity exists between the agencies. Fourth, our hazard and ordered probit models both suggest that watch and outlook procedures are generally strong predictors of rating changes relative to other public data. S&P outlook data provide the strongest in-sample prediction performance of any agency- based rating forecast, but Moody’s and Fitch watch data outper- form the prediction performance of S&P watch data.
In short, rating agencies do disagree at times, but they are generally very close to each other. Ratings tend to change more as the rating level falls across agencies. Ratings outlooks are a good predictor of future ratings changes.
Denmark, Finland, Canada, Australia, and Sweden have all been downgraded from Triple-A before but have recovered.
Canada waited almost a decade to regain its triple-A status after being downgraded, while it took Australia 17 years and six consecutive surplus budgets.
Source: Credit Ratings Comeback Kids
Agencies regularly evaluate their ratings, but when it comes to sovereign ratings, history shows that it takes a long time for countries to regain triple-A. Estimates suggest that it'll take the US at least 10 years, but it might be faster, or slower. We don't know - it depends on how the recovery goes and how America manages it's debt.
