12 Countries With Best Moody’s Credit Rating For Sovereign Bonds

In this article, we are going to discuss the 12 countries with best Moody’s credit rating for sovereign bonds. You can skip our detailed analysis of the credit risk outlook and go directly to the 5 Countries With Best Moody’s Credit Rating For Sovereign Bonds.

Sovereign Credit Rating & Credit Risk

At the request of the country, credit rating agencies such as Moody’s evaluate a country’s economic and political environment to assign it a rating. The sovereign credit rating reflects the creditworthiness of a country. Whereas, creditworthiness is a measure to understand the debt situation of a country, and how likely the state will default on its debt obligations according to a lender’s assessment. For investors, sovereign credit ratings are a standard gauge to assess the riskiness of a particular country’s bonds, including political risks as well. Developing countries focus on obtaining a good sovereign credit rating to attract foreign investment and have access to funding in international bond markets. Countries with higher debt-to-GDP are generally exposed to higher credit risk.

On February 26, Amazon.com’s subsidiary, Amazon Web Services (AWS), announced plans to initiate its infrastructure region in Mexico’s central state of Querétaro by the start of 2025. AWS is planning to invest nearly $5 billion over the 15 years. Now, this announcement is credit-positive for the Mexican data center industry, which could potentially create a wave of spillover demand for the sector’s services. AWS is yet to disclose the details of the project, however, AWS’ investment will accelerate demand for neutral data-center hosting providers including Networks Mexico (KIO, B2 stable) or Equinix (Baa2 stable) to meet backup, latency, and redundancy capacity.

According to the Credit Risk report by Moody’s, the government sector policies and market innovation will lead to more gender-related bond issuance. The issuance of sustainable bonds that finance gender equality and women empowerment projects is poised to extend recent gains after exceeding $49 billion in 2023, a rise of 53% from $32 billion in 2022. Since 2017, $148 billion in labeled bonds have played a major role in at least one project that works on the gender equality agenda, which is Goal 5 of the UN 17 Sustainable Development Goals. In addition, bond issuers in carbon-intensive sectors such as energy, utilities, manufacturing, metals & mining, oil & gas, and shipping & transportation increased their share of private sector gender-related sustainable bond issuance to almost 24% in 2023, soaring from just 8% in 2017.

The fixed-income markets have gained a solid price this summer. In the US, the government bonds market is ready to come across the Fed rate cuts, slowing inflation, and an upcoming election in November. The personal consumption expenditures price index soared 2.5% in July compared to a year earlier, matching the increase in June. Over the past three months, the annualized reading on the Fed’s preferred radar of inflation is well below its 2% goal. With inflation remaining cool, Fed Chair Jerome Powell said last week that ‘the time has come’ for the central bank to adjust its monetary policy.

Economists are expecting a reduction in interest rates at the Fed’s meeting on September 18. In that regard, the benchmark 10-year US Treasury yields are expected to end August down by almost 30 bps, the biggest monthly drop in 2024, due to expectations for speedier rate cuts. In 2023, Government bonds returned just 4% following a 15% loss across 2021 and 2022. In 2024 so far, government bonds have returned almost 1.3%.

The US elections will be an important moment for capital markets in these mixed economic circumstances. “Whatever the outcome will be, it will result in still high fiscal spending and large bond supply of U.S. Treasuries,” said Capital Group investment director Flavio Carpenzano.

The markets globally are facing strong geopolitical risks, which could impact capital markets. The two major wars in Asia and Europe are having a widespread impact across industries, disrupting supply chains. The Russia-Ukraine war is entering a new phase, with Ukraine being more aggressive in the last few weeks, while the war in the Middle East is on the verge of spreading across the region. The US policy is to support its allies and compete against rival superpowers as it pursues its interests, as geopolitical tensions continue to rise.

Warren Buffett is Making Moves

Considering the ongoing events, Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK-B) has increased its stake in T-bills and now owns $234.6 billion worth of short-term investments in the US Treasury bills. Buffett has always been a fan of T-bills. Berkshire Hathaway Inc. has sold a large chunk in the securities market, selling its majority stakes in Apple and Bank of America Corporation. The latest regulatory filing shows that Berkshire has sold about $5.4 billion worth of Bank of America shares since mid-July. Between August 23 and August 27, Berkshire Hathaway Inc. (NYSE:BRK-B) sold almost 24.7 million shares of Bank of America. Previously, Warren Buffett’s fund halved its holding in iPhone maker and now holds $84.2 billion in Apple stock, down from $174.3 billion it held at the start of 2024.

Treasury bills are short-term securities issued and backed by the US government. Returns on T-bills are not as big as what investors expect from risky investments in the stock market. However, T-bills are a safe investment and lately, they have given better returns, thanks to interest rates in the 5.25% to 5.50% range. The three-month bills have a 5.11% return rate, six-month bills are at 4.86%, and 12-month bills bring in 4.40%, as of August 30.

Warren Buffett is an investment guru and his firm has increased its stake in T-bills and fixed-income assets. Considering the current economic uncertainty, Buffett recently highlighted T-bills as one of the safest investments in capital markets.

Berkshire Hathaway Inc. (NYSE:BRK-B) is one of the leading financial services firms and is on our list of the 9 Best Financial Services Stocks To Buy Now. The company has worldwide operations in the insurance, freight rail transportation, and utility areas through its subsidiaries. On top of that, Berkshire also offers property, casualty, life, accident, and health insurance as well as reinsurance.

Insurance is Berkshire Hathaway’s primary business segment, which is managed by GEICO, Berkshire Hathaway Reinsurance Group, and Berkshire Hathaway Primary Group, respectively. During the second quarter of 2024, BRK had a record $276.9 billion cash pile and a strong 15.5% year over year growth in operational earnings.

Berkshire and GEICO both improved their pre-tax underwriting earnings during Q2 2024. In Q2 2024, the financial services giant reported a robust 82% year over year growth in net underwriting earnings across its insurance and reinsurance companies. With strong fundamentals, Berkshire Hathaway Inc. (NYSE:BRK.B) holds firm ground in the long run.

Analyst Edward Jones’ James Shanahan said in a research note:

“BRK shares have significantly outperformed financial services peers during 2023, supported by a relatively strong earnings outlook. We continue to expect solid earnings from BRK’s diverse group of operating companies. In our view, however, the current share price reflects these positives.”

Berkshire Hathaway Inc. (NYSE:BRK-B) recently surpassed the $1 trillion market capitalization.

While we acknowledge the potential of BRK-B as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Countries With Best Moody's Credit Rating For Sovereign Bonds Oleksiy Mark/Shutterstock.com

Our Methodology

To compile the list of countries with best Moody’s credit rating for sovereign bonds, we sourced our data from Trading Economics. We shortlisted the countries with the highest Moody’s credit rating of ‘AAA’. We cross-checked the credit ratings from the databases of The Global Economy and Country Economy. We have ranked the countries with best Moody’s credit rating for sovereign bonds in ascending order of their GDP (PPP), as of 2024. The data for GDP (PPP) was obtained from the IMF database.

Note: The United States is ranked last due to a negative outlook given by Moody’s, while the remaining countries are ranked in ascending order of their GDP (PPP).

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