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August 2016

In this webinar Moody’s Analytics discuss the Marco-economic and credit market conditions likely to affect the future risk of default for Chinese companies; way to measure and manage the default risk of Chinese firms, and strategies for early detection of default risk.

Related Insights

Lifetime Expected Credit Loss Modeling

In this webinar, David Fieldhouse, Director in Consumer Credit Analytics and Glenn Levine, Associate Director within the Capital Markets Research Group provide an overview of ECL quantification tools Moody’s Analytics offers to support CECL implementation across all major asset classes.

September 2017 WebPage Glenn Levine, David Fieldhouse

Lifetime Expected Credit Loss Modeling Presentation Slides

In this presentation, learn more about ECL quantification tools to support CECL implementation across all major asset classes, including dual-risk rating models (PD/LGD), credit cycle adjustment and scenario conditioning models, segment-level loss rate models and discounted cash flow (DCF) and non-DCF methodologies.

September 2017 Pdf Glenn Levine, David Fieldhouse

Weekly Market Outlook: Broad Measures of Sales and Profits Are Mediocre

First-quarter 2017 revealed solid operating results for the S&P 500. Nevertheless, other broad measures of business-sector operations have been flat to lower.

June 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Irina Baron, John Lonski, David Munves, Tomas Holinka, Katrina Ell, Xian Li, Alaistair Chan

Weekly Market Outlook: Capital Allocation and Low Bond Yields Reflect Aging Upturn

Not too long ago the value of mergers and acquisitions involving US businesses moving 12-month sum sank by -19% from February 2016's record high of $3.485 trillion to November 2016's most recent low of $2.811 trillion. This measure of M&A has since recovered to the $3.47 trillion of the 12-months-ended April 2017 and seems destined to soon establish a new zenith.

May 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Irina Baron, John Lonski, David Munves, Tomas Holinka, Katrina Ell, Xian Li, Emily Dabbs

Weekly Market Outlook: Lower Bond Yields Ward Off Wider Spreads

Elevated political risk has slashed the likelihood of either tax reform or increased infrastructure spending taking effect in 2017. The much reduced probability of a stimulatory fiscal impulse implies interest rates will be significantly lower than otherwise.

May 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Irina Baron, John Lonski, David Munves, Tomas Holinka, Katrina Ell, Xian Li, Emily Dabbs

Weekly Market Outlook: Much Doubt Surrounds VIX Index's Optimism

Financial markets were recently visited by a rarity. During the past week, the VIX index closed under 10 points on May 8 and 9. Since its start in 1990, the VIX index has closed under 10 points on only 11, or 0.1%, of the span's nearly 7,000 trading days.

May 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Irina Baron, John Lonski, David Munves, Tomas Holinka, Katrina Ell, Xian Li, Emily Dabbs

Weekly Market Outlook: Inflation's Bad Breadth May Help Contain Interest Rates

Not too long ago, the high-yield bond spread swelled and the projected default rate soared. However, that intensification of credit stress would be quickly reversed mostly because debt repayment problems were largely confined to the oil and gas industry. In other words, the late 2015 and early 2016 worsening of corporate credit conditions lacked enough breadth to endanger both financial stability and the business cycle upturn.

May 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Treasury Yields May Fall Short of Consensus Views

Once again, the 10-year Treasury yield confounds the consensus. As of early April, the consensus had predicted that the benchmark 10-year Treasury would average 2.6% during 2017's second quarter. To the contrary, the 10-year Treasury yield has averaged a much lower 2.29% thus far in the second quarter, including a recent 2.30%. Moreover, the 10-year Treasury yield has moved in a direction opposite to what otherwise might be inferred from March 14's hiking of fed funds' midpoint from 0.625% to 0.875%. For example, April 27's 10-year Treasury of 2.30% was less than its 2.62% close of March 13, just prior to the latest Fed rate hike.

April 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Irina Baron, John Lonski, David Munves, Tomas Holinka, Katrina Ell, Xian Li, Emily Dabbs

Weekly Market Outlook: Credit Improves as Debt Growth Slows and Equities Rally

The worrisome overvaluation of US equities has benefits for credit. It firmed US corporate credit quality via an increase in the number of rating upgrades ascribed to mergers, acquisitions, divestitures, and infusions of common equity capital. And at the same time it reduced the frequency of downgrades stemming from highly leveraged takeovers, stock buybacks, and special dividends. As shown by Q4-2016's smallest amount of nonfinancial-corporate net borrowing since Q4-2010 and the lowest reading on net stock buybacks since Q2-2014, 2016's equity rally has effectively increased reliance on common equity capital, while dulling the incentive for companies to buy back their often richly priced equity shares.

April 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Credit Cycle Enjoys a Respite

For the first time since 1987-1988, the US credit cycle has stabilized following a surge by credit rating downgrades relative to upgrades, a jump by the high-yield default rate, and a pronounced widening by corporate bond yield spreads. After six years at 49% of US high-yield credit rating revisions from July 2009 through June 2015, downgrades soared to 71% in the year-ended June 2016. Then downgrades eased to 58% for the year-ended March 2017 and sank to 48% during Q1-2017.

April 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Bond Yields Will Fall When the Equity Bubble Bursts

Stocks are not cheap. Thus, equities are vulnerable to a deep slide in the event profits contract or interest rates undergo a disruptive climb. The latter would probably include an increase by the 10-year Treasury yield to at least 2.75%.

April 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Near Perfect Equity Market Firms Credit

High-yield bonds endured a wild ride in March. A composite speculative-grade bond yield started the month at 5.65% for its lowest reading since September 2014. However, by March 14 this had swiftly climbed to 6.34%, which was the highest since December 16, 2016, only to suddenly drop to 6.04% as of March 29.

March 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Rate Hike Won't Hurt Bonds Amid Low Inflation

Corporate bond yield spreads often are well behaved during the early installments of a series of Fed rate hikes. Because rate hikes ordinarily occur amid above-average business activity and profits growth, the high-yield bond spread shows a decidedly below-trend median of 387 bp for those spans of the last 30 years that start with a rate hike and end with the final month prior to a rate cut.

March 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Less Borrowing Amid Faster Profits Trims Risk

In 2016's final quarter, US nonfinancial companies markedly reduced net borrowing. In turn, for the first time in more than two years, corporate debt grew more slowly than both internal funds and pretax profits. Election-related uncertainties and an overvalued equity market helped to explain the slowdown in borrowing, while a firming of industrial commodity prices supplied lift to corporate earnings. Going forward, leveraging may continue to fade until the next erosion of profitability triggers an increase in debt-funded equity buybacks that intend to buttress earnings per share.

March 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Skinny Caa Spread Defies Default Outlook

An exceptionally thin median spread for default-prone Caa-rated bonds reflects an unsustainably high tolerance of credit risk. Often, an ultra-thin spread for Caa-grade bonds is followed by wider yield spreads for both the Caa category and the entire high-yield market.

March 2017 Pdf David Munves, John Lonski, Ben Garber, Yukyung Choi, Irina Baron, Xian Li, Franklin Kim, Njundu Sanneh

Weekly Market Outlook: Credit and Equities Say Yes to a Rate Hike

When the doves turn hawkish, a Fed rate hike is practically assured. In response to a spate of warnings from high-ranking Fed officials, the CME Group's FedWatch tool recently assigned an 80% probability to a 25 bp hiking of fed funds' midpoint to 0.875% at the FOMC's March 15 meeting. Current financial market conditions strongly support a ratcheting up of this critical benchmark interest rate.

March 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Ben Garber, Irina Baron, John Lonski, David Munves, Tomas Holinka, Katrina Ell, Faraz Syed, Xian Li

Weekly Market Outlook: Low VIX and Thin Spreads Could Be on Thin Ice

The February 1 FOMC meeting minutes noted two interrelated developments. First, the narrowing by “corporate bond spreads for both investment- and speculative-grade firms” to widths that “were near the bottom of their ranges of the past several years.” Secondly, some FOMC members were struck by how “the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook for such policy initiatives.”

February 2017 Pdf David Munves, John Lonski, Ben Garber, Njundu Sanneh, Yukyung Choi, Irina Baron, Franklin Kim, Xian Li

Weekly Market Outlook: Market Data Highlights

The latest market data from Weekly Market Outlook.

February 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Ben Garber, Irina Baron

Weekly Market Outlook: Demography Is Destiny for Debt

Demography exerts considerable influence over business activity and financial markets. Well into the future, the unprecedented aging of the US population and workforce weighs heavily against the Trump administration's goal of achieving 3% to 4% calendar-year growth for the US economy. Frankly, it is beyond the scope of policy to quickly make America young again.

February 2017 Pdf David Munves, John Lonski, Ben Garber, Njundu Sanneh, Yukyung Choi, Irina Baron, Franklin Kim, Xian Li

No Surprises: Gaining Strategic Insight Through Stress Test Simulation

Since the global financial crisis, bank stress testing has become an essential part of regulators’ toolkits for monitoring and maintaining financial stability. The impact of a bank’s stress test results can have large implications for its operations, its shareholders, and for the economy at large. Anticipating the results of a formal stress test through simulation can enhance a bank's internal risk management as well as provide strategic business insight.

December 2016 WebPage David Hamilton

Sovereign Risk Report: Likely Fed Rate Hike and Oil Prices Grab Market Attention

Global financial markets are focused on signs that the US Federal Reserve will lift its policy rate at its December 13-14 meeting. Oil prices also preoccupied investors, as crude oil prices continued to recover this past week.

November 2016 Pdf Irina Baron, Xian Li

US Political Shock Jolts Global Credit Risk Measures | Moody's Analytics

Donald Trump's stunning win over his Democratic Party opponent, Hillary Clinton, was the dominant factor driving global market-based measures of credit risk since the election.

November 2016 Pdf Irina Baron, Xian Li

CDS-Implied EDF™ Measures and Fair Value CDS Spreads – At a Glance

CDS-Implied EDF (CDS-I-EDF) measures are physical default probabilities derived from credit default swap (CDS) spreads. For entities with both publicly traded equity and liquid CDS transactions, CDS-I-EDF measures provide an alternative assessment of default risk that can be directly compared with default probabilities (PDs) calculated by the Public Firm EDF model. For entities without publicly traded equity, CDS-I-EDF measures expand the default probability coverage of CreditEdge, Moody's Analytics suite of industry-leading credit metrics that incorporate signals from equity and credit markets.

November 2016 Pdf Irina Baron

Deutsche Bank's Adversity Lifts its Probability of Default

Germany's biggest bank, Deutsche Bank AG, faced intense scrutiny from investors in recent months. The company's EDF™ (Expected Default Frequency) has shown signs of deterioration as the company's financial risk has been elevated, as measured by its market leverage.

October 2016 Pdf Irina Baron

Brexit Fallout: Using Scenario Analysis and a Systemic Risk Approach to Assess Corporate Credit Risk

The June 23rd referendum, in which UK voters chose to leave the European Union, has fanned financial volatility and may precipitate a recession in the UK economy. The updated economic and financial outlook has implications for corporate credit risk.

August 2016 WebPage Glenn Levine, Danielle Ferry, Dr. Samuel W. Malone

Angang Steel's Credit Risk Rises As Local Rating Agencies Remain Sanguine | Moody's Analytics

Angang Steel is one of China's largest steel producers, but in recent times slower economic growth, coupled with elevated steel production, have put downward pressure on prices and revenues.

June 2016 Pdf Irina Baron, Glenn Levine

Probability-Weighted Outcomes Under IFRS 9: A Macroeconomic Approach

In this article, we discuss development of a framework that addresses the forward-looking and probability-weighted aspects of IFRS 9 impairment calculation using macroeconomic forecasts. In it, we address questions around the practical use of alternative scenarios and their probabilities.

June 2016 WebPage Barnaby Black, Glenn LevineDr. Juan M. Licari

A Simulated Stress Test of the Corporate Loan Portfolios of Australia's Largest Banks

This whitepaper discusses the findings of our simulation exercise to the corporate loan portfolios of Australia's five largest banks.

March 2016 Pdf Danielle Ferry, David HamiltonGlenn Levine

Simulating a Stress Test of the Corporate Loan Portfolios of Australia's Largest Banks

In this webinar, David Hamilton presents the results of a simulated stress test of the corporate loan portfolios of Australia’s five largest banks (by asset size) conducted by Moody’s Analytics.

March 2016 WebPage David Hamilton

Measuring Systemic Risk in the SE Asia Financial System

In this webinar, Moody’s Analytics combines the techniques of network analysis with the richness of Moody’s CreditEdge™ platform to compute systemic risk measures spanning the last 20 years for five major southeast Asian economies.

June 2015 WebPage David HamiltonDr. Samuel W. Malone

Measuring Systemic Risk in the Southeast Asian Financial System

This article looks back at the Asian financial crisis of 1997-1998 and applies new methods of measuring systemic risk and pinpointing weaknesses, which can be used by today’s financial institutions and regulators.

Identifying At-Risk Names in Your Credit Portfolio Webinar

Identifying At-Risk Names in Your Credit Portfolio

October 2013 WebPage David Hamilton, Irina Makarova

Best Buy Co., Inc.

Through much of its history Best Buy was considered one of the most successful retail stores in the US. However, since 2010 the electronics retailer has faced business and financial challenges that are placing increasing pressure on its credit quality.

October 2012 Pdf David Hamilton, Irina Makarova

Research in Motion Ltd.

RIM does not have traded bonds or CDS from which to observe credit spreads, and is not rated by Moody's Investors Service. However, Moody's Analytics' public EDF measure effectively captures and quantifies changes in the company's credit risk.

June 2012 Pdf Irina Makarova, David Hamilton

Shandong Helon Company Ltd.

The EDF measure for Shandong Helon Co.'s has signaled a high level of default risk since the time of the financial crisis in 2008. In 2010 its EDF measure began to trend in a range suggesting heightened risk of default, and in June 2011 its EDF jumped from 2.6% to over 7%. Its EDF measure jumped again in April 2012 to over 10%.

May 2012 Pdf David Hamilton, Irina Makarova

Bankia S.A.

Bankia SA's one-year probability of default jumped sharply in May, from 0.45% at the start of the month to 2.24% as of May 24.

May 2012 Pdf Irina Makarova, David Hamilton

Through-the-Cycle EDF™ Credit Measures

Through-the-Cycle EDF™ (TTC EDF) credit measures are one-year probabilities of default that are largely free of the effect of the aggregate credit cycle, primarily reflecting a firm's enduring, long-run credit risk trend. TTC EDF measures are useful in applications in which a stable PD input is desirable, and for which the expected cost of adjusting credit exposures as PD signals change outweighs the expected cost of negative credit events (such as default).

August 2011 Pdf David Hamilton, Min Ding, Zhao Sun

Banks and their EDF™ Measures Now and Through the Credit Crisis: Too High, Too Low, or Just About Right?

Financial institutions, particularly banks, were at the heart of the credit crisis and subsequent recession, and defaulted at unprecedented rates. It will be a long time before names like Lehman Brothers, Bear Stearns, and Northern Rock fade from the memories of investors and risk managers. Not surprisingly, the experience has redoubled interest in finding effective and efficient ways to provide early warning of credit distress for such entities.

December 2010 Pdf Tony Smith, David Munves, David Hamilton