Moody’s: Debt-to-GDP issue for top-rated nations

By Walden Siew

NEW YORK, May 13 (BestGrowthStock) – Major AAA-rated nations are
well-positioned for now to keep their top sovereign credit
ratings, but their debt-to-GDP ratios need to be stabilized,
the chief risk officer of Moody’s Investors Service said on
Thursday.

Under some hypothetical Moody’s stress tests, the United
States is the only major AAA-rated country to marginally exceed
risky debt-to-gross-domestic-product ratios, Richard Cantor,
chief risk officer at Moody’s, told a credit conference at New
York University.

The main source of vulnerability for AAA sovereign ratings
are potentially sharp increases in interest rates, Cantor
said.

But for euro zone members, the 750 billion euro ($1
trillion) joint rescue package by the European Union and the
International Monetary Fund hammered out over the weekend
will help keep interest rates at reasonable levels for now, he
said.

“Our current projections incorporate at the baseline
assumption roughly a 200 basis point increase over the next
year and a half for long-term yields,” he said.

During a panel, Edward Altman, professor of finance at
NYU’s Stern School of Business, also raised concerns about
rising interest rates weighing on AAA-rated nations.

“Interest rates are going up. Interest rates are being kept
artificially low,” Altman said. “That can’t go on forever.”

In discussing the European rescue package, Cantor said it
provides the necessary emergency aid to avert an immediate
crisis, but said it lacks legal “teeth” to ensure long-term
success.

Following initial optimism over the promise of immediate
liquidity, credit experts have begun to question addressing the
European debt crisis by piling on more long-term debt tied to
austerity measures.

“It’s a strong statement of liquidity in the medium-term
for all the member countries,” Cantor told Reuters on the
sidelines of the conference.

However, “at present there aren’t a lot of teeth in the
legal structure,” which will be needed to build stronger
consensus for the future enforcement of financial belt
tightening and potential penalties for member nations, he
said.

Prior to joining Moody’s in 1997, Cantor worked at the
Federal Reserve Bank of New York in a variety of research
positions.

Stock Trading
(Reporting by Walden Siew, Editing by Leslie Adler)

Moody’s: Debt-to-GDP issue for top-rated nations