Bangkok--28 Feb--Standard & Poor's
Corporate credit ratings, outlooks, and CreditWatch listings serve as useful benchmarks for the cost of debt. When looking at data from 1945 to February 2011, we observe a close relationship between borrowing costs and credit ratings, said an article published today by Standard & Poor's Global Fixed Income Research.
As ratings decrease, bond spreads or yields tend to increase. This negative correlation between ratings and yields (or spread over some base rate) is unsurprising, in our view, because ratings provide a consistent gauge of default risk, according to the article, titled "The Relationship Between Corporate Credit Ratings And Debt Cost Across The Maturity Curve And Through Stress Periods: 1945-Present."
"In our analysis, we found a clear relationship between corporate bond spreads or yields and ratings, both when the spreads or yields are arranged in an index, and when they're tallied as an average across a pool of bonds," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "This relationship holds true across various bond indices over time."
"We also found evidence that the relationship is similar across maturities as well as during periods of both benign and high-stress credit market conditions. Based on our bond indices from 2001 to 2011, we saw the largest increase in spreads from 'BB+' to 'BBB-'," said Ms. Vazza.
The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to
[email protected]. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
Mimi Barker, New York (1) 212-438-5054,
[email protected]
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760