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Sovereign risk and UK credit ratings

Last week, investor Jim Rogers made some rather gloomy comments about the UK's economic prospects given its "stupendous debts", adding that he would not hold the pound sterling.

While Rogers' comments provoked some rebuttal from bankers inside the UK, the debate over the state of the nation's economy comes at a time of increased worry over possible credit rating cuts for sovereign debt issuers, like the UK and the US.

The ratings risk for sovereign issuers is foremost in investors' minds, given the recent string of ratings cuts that hit European nations in the past two weeks. Greece, Spain, and Portugal were all party to recent credit rating downgrades by rating agency Standard & Poor's.

And some think Ireland could be next on the chopping block:

"“Portugal is not the first, not the last,” said Marc Chandler, head of currency strategy at Brown Brothers Harriman & Co. in New York, adding that Ireland was the “next obvious candidate” for a downgrade. “The rating agencies are behind the curve. The spreads had already indicated that the market had long concluded the same, and more,” he said."

The mounting worries have also given rise to a new catch-phrase acronym: PIGS, as in Portugal, Ireland, Greece, and Spain. This bloc of countries is currently seen as a kind of "sick man of Europe", with Standard & Poor's noting that the group may have to seek help from the IMF.

At the same time, the article above points out that all of Europe may be in trouble, so it may be rather silly to sit around and debate which countries are worst off.

Still, for those who would like a further insight into these issues, and some thoughts on the differences in assigning ratings to countries versus corporations, check out the related items below.

Related articles and posts:

1. Roubini: the UK is not Iceland - FT Alphaville.

2. The sovereign ratings on the wall - FT Alphaville.

3. Government risk rises - Seeking Alpha.

4. PIGS: Portugal, Ireland, Greece, & Spain - Kyero.com.

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