Those ratings

I wrote about this a while back but as Moody's downgrades Italy by three notches I think it worthwhile revisiting the ratings and what they mean. The various levels are as below, in the format Moody's / S& P, Fitch (Standard and Poor's and Fitch use the same system) and for ease of reference I am giving just the ratings for long-term debt

Aaa / AAA

Aa1 / AA+
Aa2 / AA
Aa3 / AA-

A1   / A+
A2   / A
A3   / A-

Baa1/ BBB+
Baa2/ BBB
Baa3/ BBB-

It is easiest to see this in terms of four divisions. Prime is Aaa / AAA (Triple A). This is the level risk perceived to be almost non-existent, so, for example, companies investing your life savings would have a fair proportion (it varies) in this category. It pays the least. The USA has been downgraded from this level by S&P, but not by the other two. There are 10 European countries at this level: 3 Scandinavians, Denmark, Germany, Holland, Switzerland, Austria, France, Britain.

The next three, the 'Double A' categories, are high grade investments. They include countries such as Spain and Belgium, and high grade companies.

Then the 'Single A' categories, which include Poland, Czech Republic and of course now Italy.

Anything below Baa3 / BBB- is not regarded as investment grade and is therefore seen as a speculative investment.

Moody's has downgraded Italy's long-term debt to A2, in line with S&P's downgrade last month. so it is nothing new. Also on the plus side are that there are four categories further to fall while remaining investment grade. Against that, all the agencies expect Italy's rating to fall.

So it's not a surprise, but it's really not good news.