Are Sovereign Credit Rating Reports Valuable

We examine the information value of sovereign credit rating reports issued by Moody’s in sovereign credit default swaps (CDS) markets across 62 countries from 2003 to 2013. We find that the negative linguistic tone in the reports contains new default-related information. After we categorize each sentence into six different information contents, we find that the most informative sentences are related to negative debt dynamics. Since 2009 Eurozone debt crisis, the credit market reacts little toward the financial sector related information. Overall, our study implies that the sovereign credit risk is not as homogeneous as what the prior literature has suggested.