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Credit Spread Risk vs. Downgrade Risk

Isn't downgrade risk just a type of credit spread risk (since downgrade is bad because it leads to credit spread..)?



Edited 1 time(s). Last edit at Tuesday, May 4, 2010 at 04:28PM by johnnyblazini.

Downgrade risk is the risk of being downgraded in credit ratings which is overall bad for CREDIT risk.

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soddy1979 Wrote:
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> It's not. Credit spread risk is the risk of all
> corporate spreads increasing (not just the bond
> you are analysing). It's a risk associated with
> the asset class as opposed to just one security.

Thank you! Not pertaining to the exam;

Credit speard risk would has to do with overall interest rates, or expectation, or shift of habitats... What if analysts and investors began to shun a specific security without the official downgrade from moodys or sp, would we call that downgrade risk?

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No. Credit ratings are worded into debt covenants and contracts ( particularly when collateral is posted or redeemed regularly)

Contracts do not refer to some whims and fancies of the market in a given period

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