Which of the S&P, Moody's, or Fitch rating reports is more authoritative?

“There are two superpowers on the planet, the The World Is Flat and the rating agencies,” Friedmann wrote. The United States can destroy a country with a bomb, and the rating agencies can destroy a country with bonds; it’s not clear who is the best.

Why are the rating agencies so important?

First, the rating agency is engaged in the credit rating business social intermediary agencies, its own is a convergence of the economy, law, financial top experts in the credit rating organizations. As long as you issue securities, the credit ratings of the rating agencies will inevitably affect you, and thus affect the decision-making of investors.

Second, over the years, when the United States regulated financial institutions, it often urged insurance companies, pension funds and other institutions to be cautious in their investments, stating explicitly that they could not invest in risky bonds. At this point the credit rating as the only criteria for the approval of credit risk, it becomes irreplaceable. Bond markets are governed by the actions of the rating agencies.

In addition, rating agencies have been recognized by international authorities, the Securities and Exchange Commission (SEC) in 1975 to identify the three major rating agencies, Moody, S & P, Fitch as the United States nationally recognized statistical rating organizations (NRSRO) , and explicitly incorporate NRSRO ratings into U. S. Securities and exchange regulations.

Last but not least, trust from investors and the bond markets is the capital of these agencies.

S & P, Fitch and Moody dominate the market

With the exception of Moody, S & P and Fitch, the other agencies in the market have very limited influence. Bonds usually rated by the three major rating agencies have a certain degree of security, so its authority in the capital market to occupy a certain voice.

The three agencies, each with a market share of more than 95 per cent, hold stakes in or acquire other agencies by opening branches around the world and have been serving as a bridge for overseas bond issuance in China. Each institution is nearly 100 years old (s & p 1860, Fitch 1913, Moody 1909) , and their 100-year history gives them a wealth of historical data on bond products that is of great value to investors.

Rating criteria for the three agencies

( Rating tier definitions )

There are two main categories of credit ratings: Long-term and short-term. The following are the rating criteria for each of the three agencies:

A、Standard & Poor’s

S & P’s long-term rating is divided into investment grade and speculative grade. Investment grade has high credit rating and high investment value, while speculative grade has low credit rating and high default risk. As shown in the table below:

S & P has six short-term ratings, A-1, A-2, A-3, B, C and D. Among them, A-1 indicates that the debt-paying ability of the issuer is strong, and this rating can be added”+”to indicate that the debt-paying ability is extremely strong.

B、Moody's Investors Service

Moody’s short term ratings are rated P-1, P-2, P-3, and NP, based on the ability of the issuer to service its short term debt, from high to low.

C、Fitch Ratings

Fitch’s long-term rating measures a subject’s ability to service foreign or local currency debt.

Fitch’s long-term credit rating is also divided into investment grade and speculative grade, including investment grade AAA, AA, A and BBB, speculative grade BB, B, CCC, CC, C, RD and D. The above credit rating ranges from high to low, with AAA being the highest, indicating the lowest credit risk, and D being the lowest, indicating that an entity or country has defaulted on all its financial debt.

Most of Fitch’s short-term credit ratings are for debt with maturities of less than 13 months. Short-term ratings place greater emphasis on the liquidity required by issuers to regularly service their debt.

Short term credit ratings range from high to low with ratings of F1, F2, F3, B, C, RD and D.