The Impact of a Third Credit Rating on the Pricing of Bonds

Abstract

This article updates a study that looks at the impact of a third rating from Fitch IBCA on bond prices; it examines the impact on prices of a rating from Duff & Phelps Credit Rating Co. The empirical evidence indicates that a third credit rating from either DCR or Fitch has value to the bond market. When there is a third rating, upgrades by Moody's and Standard & Poor's are more likely and downgrades less likely. Third ratings also have an incremental impact upon bond yields.