Definition, Typology, and Refinement of Sovereign Ratings

In its first 1918 Manual and Investment Letters, Moody’s defined its sovereign ­ratings as the relative creditworthiness of government. This measure has two ­components: the ability and the willingness (or the “good faith”) to repay the debt. In 1919, Moody’s claimed that its measure of creditworthiness was valid generally and it established a credit scale of main sovereigns. The United States led this classification with 100% (“probability” that the country will take care of its debt in every respect), ahead of Canada (95%), the United Kingdom (90%), Belgium (85%), France (75%), Italy (70%), Germany (65%), Austria (60%), and Russia (55%). The agency indicated that its ratings conveyed the probability of country respecting its financial obligations. The manuals published by Poor’s, Fitch and Standard Statistics, gave a similar definition of their ratings.