87. Speculative-Grade sovereign rating Cycles: Sovereign debt Defaults, restructurings and resolution
EEG Investiga26 Dec 2025

87. Speculative-Grade sovereign rating Cycles: Sovereign debt Defaults, restructurings and resolution

Agnello, L., Castro, V., & Sousa, R. M. (2025). Speculative-Grade sovereign rating Cycles: Sovereign debt Defaults, restructurings and resolution. Journal of International Financial Markets, Institutions and Money, 103. https://doi.org/10.1016/j.intfin.2025.102197


The study examines how sovereign defaults, debt restructurings, and resolution strategies affect the duration of periods in which countries remain rated at speculative grade. Using a change-point Weibull duration model applied to a large panel of sovereign credit ratings from Fitch, Moody’s, and S&P, the analysis shows that certain policy choices significantly prolong low-rating spells. Governments that implement nominal debt relief during defaults, rely on multilateral-supported restructurings, or experience prolonged exclusion from international capital markets tend to remain trapped in speculative-grade status for longer periods. Although the probability of exiting speculative grade initially increases over time, this effect fades after a critical threshold of roughly 15 years. Beyond this point, macroeconomic and institutional fundamentals become decisive. Higher GDP growth, improved institutional quality, lower public debt, and stronger external balances shorten speculative episodes, while banking and debt crises lengthen them. Overall, the findings highlight the long-lasting reputational and economic consequences of sovereign debt distress.

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