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Announcement:

Moody's Explains Diminished Gaps Between Local and Foreign Currency Government Ratings

02 Feb 2010

London, 02 February 2010 -- Moody's Investors Service has today published a clarification of its sovereign bond methodology that has, over time, eliminated all but a handful of gaps between the ratings of governments' local currency and foreign currency bonds. The report, entitled "Narrowing the Gap -- A Clarification of Moody's Approach to Local Versus Foreign Currency Government Bond Ratings", explains why the justification for rating gaps has weakened and outlines the specific criteria for maintaining such gaps in limited cases only.

Historically, Moody's has often rated governments' local and foreign currency bonds at different levels, with any gap typically in favour of local currency bonds. However, empirical research into sovereign default patterns, and analysis of global economic and market developments, have led Moody's to conclude that there is rarely a case to differentiate the default and loss risk of local and foreign currency government debt, thereby making rating gaps far less frequent.

"Moody's current approach is to maintain rating gaps in selected cases only and subject to specific criteria," explains Tristan Cooper, a Vice-President--Senior Credit Officer in Moody's Sovereign Risk Group and co-author of the report. "These criteria are the degree of a country's capital mobility, the pliancy of the local investor base, the existence of a balance of payments constraint, and a material difference between the government's willingness and ability to service its debt in local versus foreign currency," Mr. Cooper adds. These criteria are explained in detail in Moody's report.

In recent years, capital account mobility has increased, domestic capital markets -- especially those in emerging economies -- have deepened and governments' investor bases have broadened. As a result, the report explains, justifications for distinguishing between local and foreign currency government bond ratings have weakened.

"Crucially, it is far more likely that problems servicing debt in one currency will spill over and affect a government's ability to service its debt in another," Mr. Cooper adds.

The new report entitled "Narrowing the Gap -- A Clarification of Moody's Approach to Local Versus Foreign Currency Government Bond Ratings" is now available at www.moodys.com.

*****

NOTE TO JOURNALISTS ONLY: For more information please contact EMEA Press Information in London +44-20-7772-5456; New York Press Information +1-212-553-0376; Juan Pablo Soriano in Madrid +34-91-310-1454; Alex Cataldo in Milan +39-02-914-81-100; Eric de Bodard in Paris +331-5330-1076; Detlef Scholz in Frankfurt +49-69-707-30-700; Mardig Haladjian in Limassol +357-25-586-586; Alex Sazhin in Moscow +7 495 228 60 60; Petr Vins in Prague +4202 2422 2929; Tokyo Press Information +813-5408-4110; Hilary Parkes in Toronto +1-416-214-1635; Hong Kong Press Information +852-2916-1150; Hector Lim in Sydney +612 9270 8102; Luiz Tess in São Paulo +5511-3043-7300; Alberto Jones Tamayo in Mexico City +5255-1253-5700; Daniel Rúas in Buenos Aires +54 11-4816-2332 ext. 105; Leon Classen in Johannesburg +27-11-217-5470; Jehad el-Nakla in Dubai +971 4 401 9536; or visit our web site at www.moodys.com

London
Pierre Cailleteau
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

DIFC
Tristan Cooper
VP - Senior Credit Officer
Financial Institutions Group
Moody's Middle East Ltd.
Telephone: +971-44-01-9536

Moody's Explains Diminished Gaps Between Local and Foreign Currency Government Ratings
No Related Data.
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