This can be seen by looking at the information on which sovereign-risk ratings are based, and the nature of sovereign risk itself. This makes them different from ratings of companies. Such advance knowledge or better information can then be conveyed to market participants through ratings on private borrowers. This is not the case with sovereign borrowers. Second, in the absence of a credible international mechanism to sanction a sovereign default the premium charged to reflect the risk of default is determined by a borrower's willingness to pay, rather than by his ability to pay.
Borrowers know whether they are willing to pay.
Lenders cannot be sure. Moreover, the sovereign rating agencies get most of their revenue from governments to provide a debt rating. Naturally, they are loath to downgrade their clients. This may well introduce 'downgrade rigidity' into ratings especially in periods of large capital inflows. Unlike with private-sector ratings, then, sovereign ratings can hardly be interpreted as an indication that rating agencies lead the market by conveying new or superior information.