The 2011/12/23 at 06:50
The bond market is often considered the other side of stock-market investment. Less risky than shares, bonds are yield-producing investments. Once the preserve of institutional clients, this mark-et has seduced a growing number of private investors disappointed by the erratic evolution of the stock market. Whether they invest by themselves or via the intermediary of management companies, these savers now back State bonds or major corporate bonds from the likes of Total or Deutsche Telekom. Alas! The crisis has changed the deal of cards. These securities, once considered as “investments for good heads of households”, are now at the heart of a storm.
State loan rates have shot up in certain countries as a consequence of fears on the part of investors that debts will no longer be paid off. In this obnoxious climate, the latter need independent and reliable financial information more than ever. So it’s hardly surprising to see the recommendations of Moody’s, Standard & Poor’s and Fitch making headlines. “Private investors show a growing curiosity in rating agencies,” confirms Bruno de Pampelonne, President of the management company Tikehau IM. Their responsibility is essential to the system. They estimate the probability of default for an issuer (State, company or authorities) by attributing a rating.
A good rating provides assurance of being able to borrow at quite low rates, for the risk of non-reimbursement is very low. A poor rating, on the other hand, spells catastrophe. Proof of the importance of ratings is seen in the determination of French President Sarkozy to save the French triple A (AAA, the best possible rating), under threat from these financial market sheriffs. However, while they may appear to be at the peak of their power, these agencies have never been so criticised, accused of opacity, acting as judge and jury, and providing interventions that lack discernment. Since 10 November, Paris has also denounced their amateurism: it was on that date that Standard & Poor’s accidentally sent out signals that France had been downgraded.
Are these agencies, dubbed “the three witches”, destined to burn at the stake? Finance professionals are divided. While they agree on the excessive importance of these agencies, they also agree that the agencies are in no way the instigators of the crisis. “It’s not by breaking the thermometer or by modifying its composition that the fever will drop” recalls Marc Touati, Research Manager of Assya financial company. “They’re not the ones that asked the States to embark on uncontrolled bud-getary laxity and to increase their deficits and debts, and this without sustained growth. In the same way, it’s not the rating agencies that asked the ECB to sacrifice growth on the altar of inflation for the last 10 years,” adds the eco-nomist. In short, the agencies deserve to be neither excessively honoured, nor despised.