RT Journal Article
SR Electronic
T1 Assessment of Credit Ratings and Credit Risk Models on Public Bonds
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 65
OP 80
DO 10.3905/jfi.2021.1.104
VO 30
IS 4
A1 Karyl B. Leggio
A1 Yoon S. Shin
A1 Yuxing Yan
YR 2021
UL https://pm-research.com/content/30/4/65.abstract
AB The authors investigate the performance of two different credit risk models, the credit ratings of S&P and the market-based credit risk models of Bloomberg, using 12,679 new corporate bonds issued by 933 firms through public offerings in the United States over the 1999–2015 period. In particular, they divide their sample into bonds issued by financial firms and those issued by non-financial firms and find that (1) even though both the S&P ratings and the Bloomberg models affect the yield spreads significantly, the former has more statistical power in determining the yield spreads; (2) bond ratings of financial firms are higher than those of non-financials, but financial firms pay a higher cost of debt than non-financial firms; (3) S&P credit ratings are superior to Bloomberg models in predicting actual default of the bonds; and (4) financial firms are less likely to default than non-financial firms.TOPICS: Credit risk management, information providers/credit ratings, fixed income and structured finance, performance measurementKey Findings▪ S&P’s ratings are better than Bloomberg models in determining the yield spreads.▪ S&P’s ratings are superior to Bloomberg models in predicting the actual default of bonds.▪ Financial firms are less likely to default than non-financial firms.