Credit Spread Risk vs. Downgrade Risk provide, rating, between, understand

sabre

Can anyone provide some input on how to distinguish which risk is being mentioned should a questions arise.

I understand that credit spread risk is the risk between a Treasury and the Corporate Bond and that spread is reflected by the economy.

Downgrade risk being that the Corporate Bonds rating is downgraded.

I find that these two risk can be inter-related... By downgrading an issuance, the credit spread risk increases...

I am aware that certain characteristics can affect the issuing corporation that don't affect the economy, can cause the rating to be downgraded.

Thanks.



Edited 1 time(s). Last edit at Saturday, May 28, 2011 at 11:40PM by Matori.

disiz64

If they explicitly mention ABC company will be downgraded or something along those lines, then it is downgrade risk. But if it is just, a company's fundamentals are deteriorating, or the economy is going bad, then it is credit spread risk.