Moody's and S&P Ratings: Are They Equivalent? Conservative Ratings and Split Rated Bond Yields
Speaker
Abstract
| 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, on average, 8 basis points lower than yields on split rated bonds with superior S&P ratings. This pattern 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 ratings become relatively more conservative after 1998 and the impact of a superior Moody's rating upon split rated bond yields is stronger. In addition, the differential impact of the two ratings on split rated bond yields is more pronounced for Rule 144A issues, which are more opaque. |
| Professor Livingston has taught at the University of Florida since 1982. He has also taught at the University of Wisconsin, the University of Oregon, Concordia University in Montréal, York University in Toronto, the College of William and Mary, and Erasmus University in the Netherlands. At the University of Florida, he teaches an undergraduate class (Debt and Money Markets), a Master of Accounting class (Fixed Income Security Valuation), and a Executive MBA class (Money and Capital Markets). His research interests include fixed income securities, mutual funds, and diversification. Professor Livingston is the author of two textbooks: Money and Capital Markets (3 editions) and Bonds and Bond Derivatives (2 editions), which has been translated into Chinese. |
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