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FIXED INCOME SECURITIES
Credit rating process of
sovereign bonds with respect
to Indian sovereign bonds
Submitted to
Prof . Lakhani
Team
Lalit(96) Unnikrishnan
(98)
Pooja (94) Rekha(104) Rachana(103)
Sovereign bond
Also knows as government bonds.
One of the oldest investment asset class
in the world
Issued by the government.
Denominated in local or foreign currency.
Sovereign
bonds yield
Creditworthiness
Country RiskExchange Rate
Three major determinants
Extremely
safe
High credit
ratings
Lower
yields
More risky
Lower
credit
ratings
Higher
yields
Why to
invest in
sovereign
bond
safest
investments
produce
impressive
returns
issued by
national
governments
Risk from sovereign bonds
 Government’s willingness to pay
 Countries with
1. Weak economy
2. High debt burden
3. Weak or volatile currency
4. Little ability to collect taxes
finds difficult to pay back its debt
 Credit risk
 Currency risk
 Inflation risk
Ways to
protect
against
sovereign
risk
• Evaluation of the credit
worthiness of a debtorCredit rating
• credit rating of
a sovereign entity, i.e.
a national
government
Sovereign
credit rating
Fitch
S&P
Moody’s
The players and the game
What Is a Sovereign Debt Crisis? With
Examples
• Greek ( Debt to GDP ratio reached to 175 %)
• Iceland (Bankruptcy, took $62 billion debt
while GDP was only $14 billion)
• Eurozone ( Took the advantage of lower
interest rates)
1. Ireland
2. Italy
3. Portugal
S&p
(BBB-)
Moody’s
( Baa3)
Fitch's
(BBB-)
India’s
credit
rating
Determinants
of Sovereign
ratings
Per capita
income.
GDP growth
Inflation
Fiscal
balance
External
balance
External debt
Economic
development
Monetary
policy
Exports and
imports
• .
Effects of
sovereign
ratings
Inflation
Risk
Political
Instability
Fewer
Options
Indian economy forecast
2015 2020 IN
Currency 64.81 58.43 -
Stock market 26904.11 29700 Index points
Government bond 10y 7.55 8.31 percent
GDP 2066.90 2486 USD Billion
GDP per capita 1262.64 2374 USD
Export prices 21266.31 38179 USD Million
Import Prices 33744.28 49600 USD Million
Interest rates 6.75 4.5 percent
Government spending 3100.18 2855 INR Billion
Corporate tax rate 34.61 30 Percent
Government revenues 3455.36 3868 INR Billion
Government debt to GDP 65.50 64.09 Percent
FDI 1943.00 3836 USD Million
Corruption rank 74 -
Credit rating process of sovereign bonds

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Credit rating process of sovereign bonds