Bangkok--23 Mar--Fitch Ratings
Link to Fitch Ratings' Report: Global Bond Fund Rating Criteria - short term bond fund addendum
Fitch Ratings today released criteria for assigning fund credit and volatility ratings to short-term bond funds. The criteria are global and apply to short-term bond funds as well as local government investment pools (LGIPs) and other operating pools managed by or on behalf of public sector entities. Short-term bond funds primarily invest in various fixed-income instruments, such as banks' deposits, commercial paper, corporate bonds, notes and loans, sovereign debt and structured finance securities generally maturing in three years or less. The funds considered in the report normally exhibit weighted average portfolio maturities of two years or less.
Highly rated short-term bond funds are expected to offer a degree of liquidity and limited downside risk to fund net asset value (NAV), and are assigned Fund Credit and Fund Volatility ratings which measure, respectively, the credit quality of the portfolio assets and the fund exposure to various market risk factors.
Fitch notes that short-term bond funds are not directly comparable to money market funds, where capital preservation and liquidity are embedded within fund operating guidelines and, in certain jurisdictions, mandated by regulation. Given these differences, money market funds are rated on a separate rating scale, which includes an 'mmf' rating subscript and ranges from 'AAAmmf' to 'Bmmf' (see "Global Money Market Fund Rating Criteria", published 5 October 2009).
The report focuses on the adjustments made in Fitch's analysis to reflect the relatively short-term nature and, as a result, lower average default risk of fixed-income assets in short-term bond funds' portfolios. Notably, for the purpose of calculating the portfolio weighted-average rating factor, Fitch uses reduced credit factors for securities with maturities of 13 months or less. The report also details criteria with respect to how credit risk is viewed in terms of the lowest eligible credit quality of the fund's underlying assets.
For bond funds investing in mid- and long-term debt instruments, Fitch uses its master criteria for bond funds (see "Global Bond Fund Rating Criteria", published in February 2010).
For more information see 'Global Bond Fund Rating Criteria: Short-term Bond Fund Addendum", March 22, 2010 at www.fitchratings.com. The report should be read in conjunction with "Global Bond Fund Rating Criteria", also available at www.fitchratings.com.
Contacts: Aymeric Poizot, CFA, CAIA, Paris, Tel: +33 1 44 29 92 76; Charlotte Quiniou, CFA, +33 1 44 29 92 80; Alastair Sewell, London, +44 20 7417 6286; Davie Rodriguez, New York, +1 212 908 9177, Roger Merritt +1 212 908 0636.
Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email:
[email protected]; Brian Bertsch, New York, Tel: +1 212-908-0549, Email:
[email protected]; Hannah Warrington, London, Tel: +44 (0) 207 417 6298, Email:
[email protected].
Additional information is available on www.fitchratings.com.