The investment-grade bond market appears more anxious about the future than the high-yield bond market. A now well above-trend Baa industrial company bond yield spread warns of a wider high-yield bond spread. To the contrary, a trend-like high-yield spread favors a thinner Baa spread. In all likelihood, if the still positive outlook for profits holds, the high-yield bond spread will prove to be more prescient than the now swollen Baa spread.
RiskCalc™ EDF™ (Expected Default Frequency) values and agency ratings are widely used credit risk measures. RiskCalc EDF values typically measure default risk for private companies, while agency ratings are only available for rated companies. A RiskCalc EDF value measures a company's standalone credit risk based on financial statement information, while an agency rating considers qualitative factors such as Business Profile, Financial Policy, external support, and country-related risks. Moody's Analytics new Sovereign & Size-Adjusted EDF-Implied Rating Template combines RiskCalc EDF values with additional factors to provide a rating comparable to agency ratings for private companies. The new template applies to RiskCalc EDF values across numerous geographies and regulatory environments. With the new template, users can generate a rating more comparable to an agency rating than RiskCalc EDF values or EDF-implied ratings. Analyzing data from 3,900+ companies in 60+ countries, we find that sovereign rating and total asset size, in addition to EDF value, have a statistically significant impact on an agency rating — our quantitative template incorporating these three variables reliably estimates agency ratings in a robust fashion.
EBA published the final guidelines that provide a harmonized interpretation of the criteria for a securitization to be eligible as simple, transparent, and standardized (STS) on a cross-sectoral basis throughout EU.
OSFI set the level for the Domestic Stability Buffer at 1.75% of total risk-weighted assets, as calculated under the Capital Adequacy Requirements (CAR) Guideline.
FSI published a paper on proportionality in the application of insurance solvency requirements.
BCBS published the updated framework for Pillar 3 disclosure requirements.
This research paper discusses the credit risk premium adjustment required for constructing discount rates specified by the IFRS 17 accounting rules. Calculating the credit risk premium is a key requirement in the ‘top down' yield curve method. It may also be a useful input in computing (or benchmarking) the illiquidity premium for ‘bottom up' discount rate construction.
EBA revised the list of validation rules in its implementing technical standards on supervisory reporting.
IMF published a report on the results of the Financial System Stability Assessment (FSSA) on Brazil.
At the Peterson Institute for International Economics in Washington D.C., the FED Governor Lael Brainard summarized the financial stability outlook, highlighted areas where financial imbalances seem to be building, and touched on the related policy implications.
US Agencies (FDIC, FED, and OCC) proposed a rule to increase the threshold level at or below which appraisals would not be required for the residential real estate transactions from USD 250,000 to USD 400,000. Comments will be accepted for 60 days from publication in the Federal Register.
This week one answer was published as part of the Single Rulebook Questions and Answers (Q&A).
Both the sell-off of equities and the very limited and slight inversion of the Treasury yield curve at the three- and five-year maturities hint of a possible pause for the latest series of Fed rate hikes. Since September 26's last hiking of fed funds to 2.125%, the 10-year Treasury yield has dropped from 3.05% to a recent 2.87%, and the five-year Treasury yield has sunk from 2.95% to 2.74%.
With the economy now facing its most vulnerable window of growth since the global financial crisis, it appears the latter is again more of a priority.
FED published the updated reporting form FR Y-14Q for Capital Assessment and Stress Testing, along with the associated instructions.
In this paper, we provide empirical support for the conclusion that the CECL standard will be less procyclical than the incurred loss standard.
PRA published the policy statement PS30/18, which contains the final policy following a consultation (CP16/18) on certain amendments to regulatory reporting.
Agustín Carstens, the General Manager (GM) of BIS, during the keynote address at the FT Banking Summit in London, spoke about new challenges and policy implications of big tech in finance.
IAIS published the newsletter for November and December 2018.
ACPR notified that version 2.8.1 of the Capital Requirements Directive (CRD) IV Data Point Model taxonomy and version 2.1.0 of the Anti-Money Laundering and Terrorist Financing (LCB-FT) taxonomy have been made available.
European Council endorsed the agreement achieved between the presidency and the Parliament on the key measures of a comprehensive legislative package aimed at reducing risks in the banking sector in EU.
BCBS published a report that identifies, describes, and compares the range of observed bank, regulatory, and supervisory cyber-resilience practices across jurisdictions.
EIOPA published new sets of questions and answers (Q&A) on guidelines, implementing regulations, and delegated regulations applicable to insurers in Europe.
ESMA, the direct supervisor of credit rating agencies (CRAs) in EU, has registered A.M. Best (EU) Rating Services B.V. as a CRA under the CRA Regulation, with effect from December 03, 2018.
ECB published the final cyber resilience oversight expectations for financial market infrastructures (FMIs).
ESAs (EBA, EIOPA, and ESMA) published a statement in response to the industry concerns about severe operational challenges in meeting the transitional provisions of the Securitization Regulation disclosure requirements.
OSFI released a revised Minimum Capital Test (MCT) Guideline for federally regulated property and casualty (P&C) insurers.
EBA updated all the information disclosed by the competent authorities in EU according to the implementing technical standards on supervisory disclosure, which was published in the Official Journal of the European Union on June 04, 2014.
Profitability will have the final say regarding the future direction of the corporate credit cycle. Each of the five deep and extended contractions by profits since 1982 helped to lift the high-yield default rate well above 5%. Moreover, three of the five pronounced downturns by profits overlapped each of the recessions since 1982. For now, the outlook for corporate earnings benefits from the surprising containment of employee compensation notwithstanding the lowest unemployment rate in 49 years.
The Group of Central Bank Governors and Heads of Supervision (GHOS) met, on November 26–27, in Abu Dhabi to discuss a range of policy and supervisory topics. GHOS represents nearly 80 jurisdictions and is the governing body of BCBS.