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Asia Pacific
Article

Weekly Market Outlook: Higher Interest Rates Suppress Corporate Borrowing

An abatement of tariff-related fears reduced the uncertainty surrounding a positive outlook for US corporate earnings. In response, the market value of US common stock quickly approached its record high of August 29, 2018. Moreover, high-yield bonds rallied from already richly-priced levels. In turn, a recent composite high-yield bond spread was thinner than 340 basis points (bp) for the first time since the middle of April 2018.

September 2018 Pdf John Lonski, Franklin Kim, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell, Faraz Syed
Article

Weekly Market Outlook: Middling Ratio of Net Corporate Debt to GDP Disputes Record Ratio of Corporate Debt to GDP

First-quarter 2018's record ratio of U.S. nonfinancial-corporate debt to GDP has been cited as the harbinger of a steep upswing by corporate credit defaults once profits shrink materially again. However, first-quarter 2018's ratio of net nonfinancial-corporate debt to GDP supplies a far less ominous outlook, mostly because the liquid assets of nonfinancial corporations have been outpacing the accompanying growth of corporate debt. In terms of moving yearlong averages as of March 2018, the 11.4% annual increase by liquid assets outran the accompanying increases of 6.0% for corporate debt and 4.3% for nominal GDP.

September 2018 Pdf John Lonski, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell

To Follow the Pack or Not: CECL Based on the Consensus

This paper compares and contrasts, through the CECL lens, the two baseline scenarios Moody's Analytics produces monthly: the Moody's Analytics baseline and the consensus baseline.

September 10, 2018 Pdf Dr. Sohini Chowdhury

Assigning Probabilities to Macroeconomic Alternative Scenarios

In this article, we describe the methodology used by Moody's Analytics to assign probabilities to its regularly produced alternative macroeconomic scenarios and to calibrate these scenarios by taking into consideration recent post-crisis economic conditions.

September 10, 2018 Pdf Moody's Analytics
Article

Weekly Market Outlook: There's No Place Like Home for U.S. Investors

The U.S. economy and financial markets have been pulling away from the rest of the world. Of special importance is the lagging performance of emerging market economies, which, not too long ago, had been the primary driver of world economic growth. The combination of higher U.S. interest rates and the relatively stronger performance of the U.S. economy has triggered a notable and potentially destabilizing appreciation of the dollar versus a host of emerging market currencies.

September 2018 Pdf John Lonski, Njundu Sanneh, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell
Whitepaper

August 2018 U.S. Middle Market Risk Report

Private firm default rates have declined steadily during the past five years. At 1.4%, the rolling 12-month default rate is down 74% from its September 2009 peak of 5.2%. This trend has been driven primarily by a decline in the charge-off rate, now at its lowest level in ten years. In addition, the percentage of borrowers in non-accrual status has decreased 56% since September 2009. The number of borrowers rated “Substandard” has seen a steady increase since the first quarter of 2016, above pre-crisis levels, reflecting banks' cautious lending practices.

August 2018 Pdf Irina Korablev, Lin Moon, Stephanie Yu

Beyond Theory: A Practical Guide to Using Economic Forecasts for CECL Estimates

In this paper, we discuss some of the options that institutions have for incorporating economic forecasts into their expected loan loss reserve calculations. We discuss the benefits and costs of each approach and provide practical recommendations based on institution size and complexity.

Article

Weekly Market Outlook: Significant Differences, Eerie Similarities

The U.S. business cycle has entered its boom phase. This is a period that typically comes closer to the end of the cycle, just prior to a recession. It is characterized by robust economic growth, tightening labor and product markets, intensifying wage and price pressures, monetary tightening, and higher interest rates. Another feature of the boom phase of a business cycle is excessive risk-taking somewhere in the financial system. This fuels the boom and is eventually at the center of the subsequent bust. Subprime mortgage loans were the obvious culprit a decade ago, runaway internet stocks that pumped up a stock market bubble were the problem in the early-2000s recession, and the savings and loan crisis incited the early 1990s downturn.

August 2018 Pdf John Lonski, Yukyung Choi, Njundu Sanneh, Mark Zandi, Ryan Sweet, Barbara Teixeira Araujo, Katrina Ell, Faraz Syed
Article

Weekly Market Outlook: Base Metals Price Slump May Dispute Benign Default Outlook

New signs of industrial commodity price deflation have grabbed the attention of financial markets. Nevertheless, the latest slide by Moody's industrial metals price index has yet to even remotely approach its 26.1% average year-over-year plunge of the six-months-ended January 2016. The two major takeaways from the latest slide by base metals prices are global industrial activity has subsided and any stay by the 10-year U.S. Treasury yield above 3% will be short-lived.

August 2018 Pdf John Lonski, Yukyung Choi, Ryan Sweet, Michael Ferlez, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell

Bank Credit Risk Analysis: Intermediate (Japanese)

This seminar will teach participants the framework and tools necessary for in-depth analysis of bank credit risk in both developed and emerging markets using Moody's bank rating (global rating method).

August 16, 2018 Pdf
Webinar-on-Demand

CreditForecast.com: U.S. Consumer Credit Outlook

Moody's Analytics subject matter experts Scott Hoyt and Deniz Tudor discuss the current and anticipated trends in household credit conditions based on data from Equifax and forecasts from Moody's Analytics.

August 2018 WebPage Scott Hoyt, Dr. Deniz Tudor
Presentation

CreditForecast.com: U.S. Consumer Credit Outlook

Moody's Analytics subject matter experts Scott Hoyt and Deniz Tudor discuss the current and anticipated trends in household credit conditions based on data from Equifax and forecasts from Moody's Analytics.

August 2018 Pdf Scott Hoyt, Dr. Deniz Tudor
Article

Weekly Market Outlook: Profit Outlook Offsets Record Ratio of Corporate Debt to GDP

A high ratio of debt to GDP may be manageable, that is up until the income flow servicing such debt recedes. During the past several years, the ratio of U.S. nonfinancial-corporate debt to GDP seems to have lost its ability to explain both the magnitude and the direction of the high-yield default rate.

August 2018 Pdf John Lonski, Yukyung Choi, Njundu Sanneh, Ryan Sweet, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell
Article

Weekly Market Outlook: Upon Further Review, Debt to EBITDA Still Falls Short as an Aggregate Predictor

Last week's commentary began with a reference to the weak predictive power of an unadjusted median ratio of corporate debt to EBITDA for publicly held, nonfinancial-company issuers of high-yield debt. However, one reader was gracious enough to take the time to alert me to a major shortcoming of the median ratio of corporate debt to EBITDA, especially as it applies to high-yield issuers. EBITDA—or earnings before interest, taxes, depreciation and amortization—can be negative, especially among companies having speculative-grade ratings. As a result, an unadjusted median ratio of corporate debt to EBITDA often understates how burdensome outstanding debt is relative to the EBITDA of high-yield issuers.

August 2018 Pdf John Lonski, Franklin Kim, Yukyung Choi, Njundu Sanneh, Ryan Sweet, Reka Sulyok, Barbara Teixeira Araujo, Katrina Ell
Webinar-on-Demand

CECL Disclosures – Required and Beyond

Our experts, Masha Muzyka and Jin Oh, cover transition disclosures focus areas, potential implication of the methodology chosen to the expected disclosures and ECL disclosure best practices emerging to date.

July 2018 WebPage Masha Muzyka, Jin Oh
Presentation

CECL Disclosures – Required and Beyond

CECL Disclosures – Required and Beyond

July 2018 Pdf Masha Muzyka, Jin Oh

Steven G. Cochrane, Moody's Analytics Chief APAC Economist

Dr. Steven G. Cochrane is the Chief APAC Economist of Moody's Analytics

July 31, 2018 Pdf
Article

Weekly Market Outlook: Ratio of Debt to EBITDA Is a Poor Predictor of the Default Rate

The median ratio of interest expense to EBITDA offers another way of explaining the high-yield default rate. This approach fares far better when compared to explaining the default rate with the median ratio of debt to EBITDA. Since year-end 2005, the quarterly default rate generates a relatively meaningful correlation of 0.75 with the median ratio of interest expense to EBITDA from one to two quarters earlier.

July 2018 Pdf John Lonski, Franklin Kim, Yukyung Choi, Ryan Sweet, Michael Ferlez, Barbara Teixeira Araujo, Reka Sulyok, Katrina Ell, Faraz Syed
Webinar-on-Demand

Choosing the Right Cloud-Based Credit Origination Solution

An evaluation of features, functions, and security

July 2018 WebPage Annie Choi, Jill Coppersmith, Brian Cox
Whitepaper

Insight, IFRS 17, and Innovative Technologies - Drivers of Change in the Insurance Industry

Performance optimization through business insight, dealing with IFRS 17 in a post-Solvency II world, and the challenges associated with stress testing for insurance firms in the US. These were the focus areas for Moody's Analytics at this year's Moody's Insurance Summits in London and New York.

July 2018 Pdf
Presentation

Choosing the Right Cloud-Based Credit Origination Solution

Choosing the Right Cloud-Based Credit Origination Solution

July 2018 Pdf Annie Choi, Jill Coppersmith, Brian Cox
Article

Weekly Market Outlook: Base Metals Price Drop Suggests All Is Not Well

Though it goes practically unmentioned, one of the more unexpected developments of late has been the stunning collapse of Moody's industrial metals price index. In part, the industrial metals price index's average of July-to-date is a deep 8.2% under its June 2018 average because of uncertainties stemming from trade-related issues. Since worries surrounding a trade war came to the fore following June 14's close, the base metals price index has sunk by 13.0%. Nevertheless, the base metals price index's month-long average had peaked some time ago in February 2018, where the subsequent slide by the index through mid-June reflected a loss of momentum for global industrial activity.

July 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Katrina Ell
Presentation

Incorporating Economic Forecasts into CECL

CECL will require institutions to incorporate macroeconomic forecasts formally into their loss allowance estimates for the first time. There are a number of ways in which this can be achieved as the CECL guidelines don't specify any one particular approach. In this presentation, we discuss some of the options that institutions have for incorporating economic forecasts into their expected loan loss reserve calculations. We discuss the benefits and costs of each approach and provide practical recommendations based on institution size and complexity. We also show a simple solution for calculating the lifetime expected losses for consumer loans for different products.

July 2018 Pdf Dr. Sohini Chowdhury

Trade War Scenarios

Fill out this form to request more information on our Trade War Scenarios. Moody's Analytics scenarios are the foundation of risk management, compliance and strategic planning needs

July 17, 2018 WebPage Mark Zandi
Presentation

Challenges in CECL Implementation

Challenges in CECL Implementation

July 2018 Pdf Robby Holditch
Article

Weekly Market Outlook: Markets Suggest the U.S. Fares Best in a Trade War

Financial markets believe that the U.S. is likely to fare better than most other major economies in an all-out trade war. This is because (i) international trade accounts for a smaller share of U.S. business activity, (ii) the U.S. imports far more than it exports, and (iii) the U.S. now well outperforms other major economies. Nevertheless, though the U.S. is better able the withstand the direct and collateral damage of a trade conflict, it is still expected suffer casualties in a trade war. And such casualties might well influence the outcome of November's Congressional elections.

July 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Reka Sulyok, Barbara Teixeira Araujo, Katrina Ell, Faraz Syed
Presentation

Simple But Not Simpler: Day 1 Modeling Approaches

Simple But Not Simpler: Day 1 Modeling Approaches. This presentation is a review of simple approaches available to community banks on the road to their CECL journey.

July 2018 Pdf Laurent Birade
Article

Weekly Market Outlook: Outstandings of Rated U.S. Corporate Bonds Dip from 2018's First to Second Quarter

According to Moody's Capital Markets Research Group, second-quarter 2018's outstandings of Moody's-rated U.S. corporate bonds excluding ABS and MBS rose by 3.3% year-over-year to $7.212 trillion, which was a slight 0.6% under first-quarter 2018's record high of $7.259 trillion. The second quarter's yearly increase of 3.3% was much slower than the 6.3% yearly increase of 2018's first quarter and was the smallest since the 2.1% of 2015's final quarter. The -0.6% dip by U.S. corporate bonds outstanding from the first to the second quarter of 2018 was only the third such sequential decline by the rated outstandings of U.S. corporate bonds during the past five years. The other two quarterly retreats were those of 0.2% of 2016's final quarter and 5.7% in 2015's final quarter.

July 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Katrina Ell, Veasna Kong, Alaistair Chan

Chartis Research: Moody's Analytics Balance Sheet Management Vendor Analysis

Chartis Research is the leading provider of research and analysis on the global market for risk technology. This report focuses on Moody's Analytics Balance Sheet Management solution.

July 05, 2018 Pdf
Article

Weekly Market Outlook: Trade War Will Turn Ugly if Profits Shrink

Let's start with the good news of operating profits' much faster rise relative to the growth of corporate debt. During 2018's first quarter, the 9.7% year-to-year advance by the pretax operating profits of U.S. nonfinancial corporations far outran the accompanying 5.2% increase by nonfinancial corporate debt. Moreover, for the year-ended March 2018, operating profits' 7.2% increase also outpaced the 5.9% growth of corporate debt. In turn, the moving yearlong ratio of debt to operating profits for nonfinancial corporations eased from third-quarter 2017's cycle high of 699% to the 691% of 2018's first quarter.

June 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Ryan Sweet, Barbara Teixeira Araujo, Katrina Ell, Veasna Kong
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