He Risk country of Uruguay fell to levels close to its historical lows after the improvement of the country’s credit rating by Moody’s for the first time in ten years, in recognition of “continuous compliance with fiscal and monetary policy frameworks.”
After the rating agency Moody’s would raise to Baa1 —equivalent to BBB+— the country’s investment grade rating, this support for the Uruguayan economic direction as well as greater investor confidence was reflected in the decrease in the different indicators that measure the sovereign spread.
In that sense, the Uruguay Bond Index (UBI) of AFAP Republic measured at 71 basis points at the close of trading yesterday, when the previous day it had closed at 75 bp. This indicator is calculated daily and reflects the average spread, that is, the difference between the yield of Uruguayan bonds and the yield of treasury bonds. United States (treasuries).
The lowest level of the UBI so far this year was recorded on January 16, when it hit the floor of 73 basis points.
For his part, the Uruguay Risk Index of the Electronic Stock Exchange (Irubevsa), which also measures the spread or difference between the yield of Uruguayan and US bonds, fell from 80 basis points to 70 bp following the news of the credit improvement. The floor of this indicator so far in 2024 was 76 bp on February 16.
Also, the Emerging Market Bonds (EMB) IndicatorI, for its acronym in English) of JP Morgan it was placed at 71 basis points; Meanwhile he Credit Default Swap (CDS) five years it was 58 basis points.
Why did Moody’s improve Uruguay’s credit rating?
Among the arguments to define the improvement of the investment grade rating, Moody’s highlighted “the strong institutions that support the implementation of structural reforms and the continued compliance with the fiscal and monetary policy frameworks,” which he praised for aiming “for growth sustained higher than in the past, supported by strong investment”.
At the same time, he highlighted the set of reforms implemented in recent years by noting that they “strengthen the fiscal and monetary policy frameworks.” Looking to the future, the rating agency warned that “a trend of investment stronger will support growth performance, facilitating fiscal consolidation and stabilizing debt of Uruguay in the next years”.
In turn, the agency pointed out that the rating Baa1 “is supported by fiscal reserves and comparatively large external buffers and very strong asset and liability management practices.”
“These credit strengths are balanced by a moderate level of public debt, structural rigidities in public spending and a relatively high, although decreasing, proportion of public debt in foreign currency,” the report noted.
Source: Ambito
