Let’s Start With the Basics—What is a Sovereign?
A sovereign is a nation or a country. The United States is a sovereign state (along with Botswana, Egypt, Iceland, Mexico…you get the idea).
So, Does a Sovereign Analyst Just Look at Countries?
Basically, yes.
What’s the Point?
Most all countries borrow money—from people around the world and from other countries. The United States does it all the time. They issue debt (same thing as borrowing money) in the form of bonds. In the U.S. these are called Treasury bonds.
In general, it’s relatively safe to buy bonds issued by sovereign nations. But, before you lend someone or some country money—which is the same things as buying a bond—you need to understand what your chances are of getting repaid. A sovereign credit analyst will help you understand those chances by assigning a credit rating to each nation. People refer to this simply as a country’s “rating.”
What Exactly is a Credit Rating?
A credit rating is an opinion of how likely an issuer (a sovereign nation in this case) is to repay its outstanding debts (bonds). This is important on a stand-alone basis, but is also helpful when comparing one sovereign nation to another.
In some ways, a credit rating is similar to an individual’s personal credit score.
Do Analysts Only Assign Credit Ratings to Sovereign Nations?
No. Credit analysts typically work either for an investment bank or a ratings agency. These groups rate the credits of all different types of bonds: municipal bonds (such as state and local governments), corporations (like Wal-Mart) and federal agencies (like Freddy Mac).
