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Moody's and S&P Ratings: Are They Equivalent? Conservative Ratings and Split Rated Bond Yields
Author(s) -
LIVINGSTON MILES,
WEI JIE DIANA,
ZHOU LEI
Publication year - 2010
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2010.00341.x
Subject(s) - bond credit rating , bond , agency (philosophy) , credit rating , economics , actuarial science , psychology , mathematics , philosophy , finance , credit risk , epistemology , credit reference
We examine the relative impact of Moody's and S&P ratings on bond yields and find that at issuance, yields on split rated bonds with superior Moody's ratings are about 8 basis points lower than yields on split rated bonds with superior S&P ratings. This suggests that investors differentiate between the two ratings and assign more weight to the ratings from Moody’s, the more conservative rating agency. Moody's becomes more conservative after 1998 and the impact of a superior Moody's rating becomes stronger. Furthermore, the differential impact of the two ratings is more pronounced for the more opaque Rule 144A issues.