Credit rating agencies still not very good at rating credit

The University of Cambridge is apparently a safer investment than the UK.

More ratings-agency craziness. Cambridge University is entering the bond market for the first time, and Moody's has rated its debt as safer than Britain's. The Financial Times' Michael Stothard and Chris Cook report (£):

Britain’s richest and second-oldest university issued a 40-year, £350m bond, taking advantage of low yields to fund a new laboratory for stem-cell research and accommodation for postgraduates.

The bond, priced at 60 points over gilts, was well received. Last week, the university was awarded a triple A rating by Moody’s. The agency said the rating reflected Cambridge’s “outstanding market position, significant amount of liquid assets and strong governance structure”.

Yet more evidence that ratings agencies "quite simply don't understand what they themselves are saying", in the word of NIESR's Jonathan Portes. As Matt Yglesias writes, there is no possible situation in which Cambridge bonds, denominated in British pounds could be safer than UK sovereign debt:

When the UK government borrows money, it borrows pounds sterling. The UK government also has the capacity to create infinite quantities of pounds sterling instantaneously. Therefore, the UK government can never be forced by economic circumstances into defaulting on its debt obligations. At worst it could be forced into inflationary policies that erode the value of its pound-denominated debt. If you're an investor, that's a real thing to worry about when buying British debt. But any such inflation would equally impact any pound-denominated debt no matter what the circumstances of the issuer. University of Cambridge debt can't be safer than UK sovereign debt in inflation terms.

The bizarre decisions made by the ratings agencies have always been there – back in 2002, for instance, Moody's downgraded Japan below Botswana – but finally, awareness is starting to become more widespread. If that awareness can penetrate the world of finance, then the end of their influence may be nearer than it looks.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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