Question

How does credit analysis differ for sovereign issuers?

Answer 1

Credit analysis are different for the sovereign issuer because credit analysis for the sovereign entities are always having an additional advantage of risk free in nature and they will also have a lower return associated With them because they are highly secured form of assets so they are different from the corporate issue because corporate bonds are generally associated with low backing from the corporate entity and corporate entity are also subject to insolvencies where at Government entities are having the authority of collection of taxes and these are granted risk-free status because government is not likely to default so credit analysis for sovereign issue is different from that of Corporate companies because corporates issue are generally associated with high risk and they are also exposed to various market factor to the largest possible extent.

Sovereign issues are also protected to a large extent in association with the risk related to default risk and interest rate movement to certain extent.