Credit ratings are one of the important measures for bond investors since these ratings are assessments of the creditworthiness of a borrower, such as a corporation, government, or a specific financial instrument like a bond. These ratings are assigned by privately owned credit rating agencies such as S&P Global, Moody’s, Fitch Ratings, or Scope. They indicate the likelihood that the issuer will meet its debt obligations (interest and principal payments) in full and on time. As a result, credit ratings help investors evaluate default risk, guide interest rates, and influence borrowing costs for bond issuers. More generally speaking, ratings range

Federal Reserve Chair Jerome Powell throughout 2023 has been hawkish on inflation and the need to increase and maintain higher levels of interest rates. The market reaction during the first half of 2023 was that this would trigger a recession, given the view that higher interest rates are not sustainable and will result in an increase in defaults and a subsequent fall in interest rates. This narrative of lower future interest rate levels appears to have been influenced by recency bias and the idea that interest rates need to return to lower levels in order to sustain the economy. This

The spread between the yields of BBB-ranked and AA-ranked corporate bonds, commonly known as the default spread, tracks the equity risk premium and reflects aggregate default probability. Of course, by indicating increased default probability when it gets higher, the default spread reveals the market’s view about the “health”, i.e., earnings prospects, of the corporate world. Those earnings prospects were significantly worsened when the pandemic-related recession began in the US, UK, and EU. Each of these hubs experienced a different magnitude of negative shocks about earnings prospects, due to the distinct characteristics of their corporate space. The shock was larger in

The Senate managed to pass a tax plan on Friday night and the reconciliation needed with the House version passed earlier in November will likely be finished in the next few weeks so a final version should be ready for Trump’s signature well before year end. This is an extremely complex piece of legislation so even after reconciliation it will be months if not years before its implications – and unintended consequences – are fully evident. But most main themes of the package should remain so we think it worthwhile to consider what the likely impact of the legislations bodes