Ratings and Bond Markets in Emerging Economies

October, Saturday 29th | 14:30-16:30hs

Contributed Session CS55

Room 269

 
Chair: Sara Bertin, Moody’s France
 
 

 

 How Important is Sovereign Risk in Determining Corporate Credit Spreads? The Case of South Africa

 

  

 

Session: Ratings and Bond Markets in Emerging Economies

 

  

Presenter

 Marcel Peter, International Monetary Fund

 

  

Author(s)

Marcel Peter, International Monetary Fund

Martín Grandes, The American University of Paris, Co-Chairman of LACEA 2005

 

  

 

 

The paper analyzes and quantifies the importance of sovereign risk in determining corporate default premia (yield spreads), after controlling for firm-specific determinants. In addition, it investigates to what extent the practice by rating agencies and internationally active banks of not rating companies higher than their sovereign (“country or sovereign ceiling”) is reflected in market prices of South African local-currency-denominated corporate debt.

 

 

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 A Fabricated Ceiling? The Information Contribution of Bond Ratings

 

  

 

Session: Ratings and Bond Markets in Emerging Economies

 

  

Presenter

 Nada Mora, American University of Beirut

 

  

Author(s)

Nada Mora, American University of Beirut

Sebouh Aintablian, American University of Beirut

 

  

 

 

We test whether security prices react to an independent change in bond rating procedure. Moody's eliminated its sovereign ceiling rule on June 7, 2001. We find that the yield spreads of the affected companies fell when compared to control companies. This effect is no longer significant when allowing for time series. There is no evidence that companies that would be expected to be more constrained by the sovereign ceiling react more to the announcement. Finally, there is no stock price reaction.

 

 

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 Improving the Effectiveness of the Market for Bonds in the CARICOM sub region

 

  

 

Session: Ratings and Bond Markets in Emerging Economies

 

  

Presenter

 Patrick Watson, University of the West Indies, Trinidad and Tobago

 

  

Author(s)

Patrick Watson, University of the West Indies, Trinidad and Tobago

Antoinette Stewart, University of the West Indies, Trinidad and Tobago

Cecile M.S. Pemberton, University of the West Indies, Trinidad and Tobago

 

  

Sponsor

 The LACEA-GDN Scholarship

 

  

 

 

This paper describes the structure and functioning of the bond market in the CARICOM sub region, compares it with more developed markets, and makes policy recommendations for improving its efficiency and effectiveness. Bond indices are calculated for Barbados, Jamaica and Trinidad and Tobago and for the CARICOM region. Rates of return and risk are derived from the bond indices and are used to evaluate the relative efficiency of the markets.

 

 

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 Optimal Bidding in the Mexican Treasury Securities Primary Auctions: Results from a Structural Econometrics Approach

 

  

 

Session: Ratings and Bond Markets in Emerging Economies

 

  

Presenter

 Sara Castellanos, Banco de México

 

  

Author(s)

Sara Castellanos, Banco de México

Marco Oviedo, Yale University

 

  

 

 

A structural analysis of the Mexican Treasury securities primary auctions suggests that a uniform format will feature revenue superiority under higher market uncertainty, defined as an environment with noisier signal values. This revenue superiority is associated to the winner’s curse under discriminatory formats. The analysis is carried out by applying a structural econometric model based on the share auction proposed by Wilson (1979).

 

 

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