S&P says ratings more accurate than credit default swap prices

Delegates at JP Morgan Chase's annual bond and risk management conference in Barcelona today claimed financial markets, particularly the credit default swaps market, are a better indicator of a company's credit risk than an agency rating. "Should they [rating agencies] react more quickly when, for instance, ABB trades at 500 basis points for swaps?" asked one delegate.

Agnes de Petigny, European head of corporate and infrastructure ratings for S&P, defended the agencies’ credit fundamentals approach, stating ratings must not be driven by “market hiccups”.

"A few years ago KPN was rated BBB but was trading at around 400 basis points. But it did an equity issue and it came back. We had factored that recovery into the rating," Petigny claimed.

But she admitted the agency has only one or two people checking ratings consistency across sectors. "But by definition these people can't know the companies as well as the principal analysts. So we have to ask the question: is it their job to question the rating?"

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here