Moody’s Investors Service recently upgraded its India rating to Baa2 from Baa3, and changed the outlook from stable to positive. The rating downgrade was also accompanied by a change in outlook from “stable” to “negative”. Four years later, the return on US bonds, including capital gains, was a healthy 11%, contrary to what the rating downgrade would have implied. It turns out that this anomalous behaviour was not confined to the US bond rating downgrade alone. Of course, sovereign rating agencies are not supposed to be influenced by such short-term dynamics, and they look at longer-term prospects.

Source: Mint November 28, 2017 22:41 UTC