In all the business lines and research by DBRS, a key underlying practice recurs: rating through the cycle. This perspective is integral to all DBRS’s methodologies, whether they are applicable to rating structured finance transactions, financial institutions or sovereigns. 

Sovereign Rating

In sovereigns the difference between the rating agencies is quite stark, see figure.

Spain’s Sovereign Debt Rating since October 2010

DBRS, who has downgraded Spain’s rating a total of three times since 2010, now believe Spain’s prospects are improving, “Bond yields in Spain continue to improve, indicating waning risk now that the worst of the crisis appears to be over.”

Conclusion

DBRS believe that when rating sovereign debt, it is more effective to take a measured approach by attempting to look through typical fluctuations that come from economic cycles in order to look at the longer time horizon. The DBRS focus on structural issues means that they avoid hasty reaction to economic news.

Recent history has shown that in times of economic turbulence, DBRS is less likely than its peers to lower ratings by a wide margin or to be as volatile as financial market indicators. Alternatively, in times of positive periods, DBRS is also less likely to raise ratings rapidly. DBRS have found that the result is a smoother, less volatile rating approach.