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2012 | OriginalPaper | Buchkapitel

9. Fitch, Moody’s, and S&P Sovereign Ratings and EMBI Global Spreads: Lessons from 1993–2007

verfasst von : Norbert Gaillard

Erschienen in: A Century of Sovereign Ratings

Verlag: Springer New York

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Abstract

The past two decades have seen a remarkable growth in sovereign bond debt issued by emerging countries. This evolution was accompanied by the extensive use of the JP Morgan Emerging Markets Bond Index (EMBI) among investors. The EMBI, a total-return index that tracks the traded market for U.S. dollar-denominated Brady and other similar sovereign restructured bonds, was successively transformed into the EMBI⁺ and the EMBI Global (EMBIG) so as to include US dollar local markets instruments, performing loans, Eurobonds, and investment-grade issuers (JP Morgan 1995, 1999). These indices provide investors with a well-defined performance benchmark and a vehicle for analyzing sovereign risk and returns. It is therefore relevant to compare them with FC ratings assigned by Fitch, Moody’s, and S&P.

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Vorheriges Kapitel Consistency and Performance of Sovereign Ratings Since the 1980s

Nächstes Kapitel The Limits of Sovereign Ratings in Light of the Greek Debt Crisis of 2009–2010

In this chapter, Fitch sovereign ratings include the credit ratings assigned by IBCA and Duff & Phelps prior to their merger with Fitch in 1997 and 2000, respectively.

Moody’s upgraded Pakistan in February 2002 and Argentina in June 2005 at a time when the spreads of the two countries were excessively high.

August 1998 was the month with the highest spreads for the period under study.

The two percentages are weighted averages based on Fitch, Moody’s, and S&P downgrades for July 1997–December 1998 and Fitch, Moody’s, and S&P upgrades for June 2005–April 2007 (author’s calculations).

Here I continue using monthly stripped spreads.

I consider that ratings are expected to be upgraded (respectively downgraded) when there is a strong decrease (respectively increase) in spreads.

I assume that all rating changes (day 0) occurred before the end of the trading day.

Daily spreads are here used for the period 31 December 1993 to 28 February 2007.

Uruguay was downgraded from investment grade to speculative grade on 14 February, 13 March, and 3 May 2002 by S&P, Fitch, and Moody’s, respectively (see Chap. 8).

This choice is implied by the fact that the number of rating changes differs across agencies (Table 9.11), and one could raise doubts about the influence of an agency whose upgrades and downgrades have an impact on spreads, but are very few.

Baldacci E., Gupta S. and Mati A. (2008), “Is it (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets”, IMF Working Paper, WP/08/259.

Cantor R. and Packer F. (1996), “Determinants and Impacts of Sovereign Credit Ratings”, Economic Policy Review, Federal Reserve Bank of New York, October.

Eichengreen B. and Mody A. (1998), “What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?”, National Bureau of Economic Research, Working Paper No.6408.

Ferri G., Liu L.-G. and Stiglitz J. (1999), “The Procyclical Role of Rating Agencies: Evidence from the East Asian Crisis”, Economic Notes, Banca Monte dei Paschi di Siena SpA, No.3.

Ferrucci G. (2003), “Empirical determinants of emerging market economies’ sovereign bond spreads”, Bank of England, Working Paper No.205.

JP Morgan (1995), “Introducing the Emerging Markets Bond Index Plus (EMBI⁺)”, Methodology Brief, 12 July.

JP Morgan (1999), “Introducing the JP Morgan Emerging Markets Bond Index Global (EMBI Global)”, Methodology Brief, 3 August.

Kräussl R. (2000), “Sovereign Ratings and Their Impact on Recent Financial Crises”, Center for Financial Studies, Working Paper 2000/04, Frankfurt/Main.

Larraín G., Reisen H. and von Maltzan J. (1997), “Emerging Market Risk and Sovereign Credit Ratings”, OECD Development Centre, Technical Paper No.124.

Mora N. (2006), “Sovereign credit ratings: Guilty beyond reasonable doubt?”, Journal of Banking and Finance, Vol.30, No.7.

Reisen H. and von Maltzan J. (1999), “Boom and Bust and Sovereign Ratings”, OECD Development Centre, Working Paper No.148.

Rowland P. and Torres J. L. (2004), “Determinants of Spread and Creditworthiness for Emerging Market Sovereign Debt: A Panel Data Study”, Banco de la República, Colombia, Borrador de Economía 295.

Sy A. (2001), “Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals”, IMF Working Paper, WP/01/165.

Titel: Fitch, Moody’s, and S&P Sovereign Ratings and EMBI Global Spreads: Lessons from 1993–2007
verfasst von: Norbert Gaillard
Verlag: Springer New York
Buch: A Century of Sovereign Ratings
Print ISBN: 978-1-4614-0522-1

Electronic ISBN: 978-1-4614-0523-8

Copyright-Jahr: 2012
DOI: https://doi.org/10.1007/978-1-4614-0523-8_9