Just on the day when the interest rate on ten-year BTPs fell below 2% and the spread with the equivalent German bonds fell to 120 basis points, Standard & Poor's lowered Italy's rating to the threshold of the "junk" class . In fact, it has reduced it by one step, from BBB to BBB- and a possible drop of a further step would bring the Italian rating to BB+, the highest level within the so-called "non investment" (or junk) area. an area less willingly frequented by investors.
At first glance, this is bad news for the Bel Paese, which is going through a phase of economic depression and would instead need great optimism to get out of it. However, after the many gross errors of which the main rating agencies have become protagonists from the Asian crisis, to the Enron and Parmalat cases, to structured finance and Lehman Brothers, to the excessive downgrading in the European sovereign crises (cf. G. Ferri and P. Lacitignola, "The rating agencies", Bologna, Il Mulino, 2014) it is legitimate to doubt the correctness of their judgments.
And then perhaps the best thing to do is to see if the markets actually still believe in those judgments. Putting together the ratings assigned by S&P and the interest rates on ten-year bonds for fifteen developed or emerging countries, it appears that, in fact, there it is a negative correlation between the level of the rating and the interest rate that the markets demand from the various countries.
But, at the same time, the measure of the goodness of this relationship tells us that the degree of approximation is very partial: the level of the rating alone explains only 39% of the differences between the rates that the various countries pay on ten-year bonds years. Therefore the remaining 61% is explained by other factors that the markets consider more important than the rating itself.
So let's try to calculate the difference between the interest rate each country actually pays and the rate it should instead pay solely on the basis of the rating it receives from S&P. Well, together with Japan, Italy, Spain and Portugal are the countries for which the interest rates demanded by the markets are lower than what these countries should pay based on the rating assigned to them. Our country currently pays 150 basis points less than it should pay. Could it be that the markets are right?
