The market price of country risk is the spread between a government’s dollar bonds and matching US Treasuries, or the cost of credit default swaps on that government. A wider spread is a direct statement about perceived solvency.
Ratings from Moody’s, S&P and Fitch formalise the same judgement, and the investment-grade boundary matters disproportionately. Many institutional mandates cannot hold anything below it, so a downgrade across that line forces selling for reasons unrelated to the underlying view.
It is a floor under everything domestic. A company rarely borrows more cheaply than its own government, so sovereign risk sets the discount rate for every business in the country, which is why a sovereign downgrade reprices the local equity market too.