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Join Dr. Olga Loiseau-Aslanidi and Alaistair Chan as they discuss methods for incorporating forward-looking macroeconomic information to meet IFRS 9 impairment calculation requirements. Our economists will address the probability-weighted aspects of IFRS 9 using Moody’s Analytics economic scenarios.

Join Dr. Olga Loiseau-Aslanidi and Alaistair Chan as they discuss methods for incorporating forward-looking macroeconomic information to meet IFRS 9 impairment calculation requirements. Our economists will address the probability-weighted aspects of IFRS 9 using Moody’s Analytics economic scenarios. The team will also discuss our modeling approach for calculating expected credit losses for retail lending portfolios.

Topics include:

  • Ensuring an unbiased, probability-weighted outcome.
  • Incorporating macroeconomic information and probability weights.
  • Forecasting equations and systemic integrity.
  • Econometric modeling approach for retail portfolios.

Related Insights
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
Article

Weekly Market Outlook: Fewer Defaults Strongly Favor a Higher Equity Market

Notwithstanding the occasional jarring setback, the market value of U.S. common stock need only rise by 4.8% in order to return to its record high of January 26, 2018. Such a recovery appears to be well within reach if profits grow. Moreover, the realization of the projected decline by the U.S.' high-yield default rate from April 2018's 3.7% to 1.5% by April 2019 implies a firming of corporate finances that can only facilitate a recovery by share prices.

May 2018 Pdf John Lonski, Franklin Kim, Yukyung Choi, Ryan Sweet, Kathryn Asher, Michael Ferlez, Barbara Teixeira Araujo, Katrina Ell, Alaistair Chan, Veasna Kong, Faraz Syed
Article

Weekly Market Outlook: M&A Both Enhances and Diminishes Corporate Credit Quality

Mergers, acquisitions and divestitures (M&A) wield considerable influence over corporate credit quality, where M&A's impact on a single company's credit standing can vary over time. For example, a credit rating may be downgraded early on because of the substantial increase in leverage brought on by a debt-financed acquisition. However, over time, the acquisition may help to boost profitability, liquidity and the company's market value by enough to eventually prompt a credit rating upgrade.

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

Moody's Analytics Webinar: Briefing on the EBA Scenarios

The European Banking Authority has released its scenarios for the 2018 EU-wide stress test. Join our experts as they analyze the EBA’s scenario assumptions, narratives driving them and compare them to other regulatory stress tests.

February 14, 2018 WebPage Dr. Olga Loiseau-Aslanidi, Petr Zemcik
Article

Dynamic Model-Building: A Proposed Variable Selection Algorithm

In this article, we propose an innovative algorithm that is well suited to building dynamic models for credit and market risk metrics, consistent with regulatory requirements around stress testing, forecasting, and IFRS 9.

Article

Weekly Market Outlook: Surging Equities and Thinner Spreads Favor Higher Treasury Yields

Earnings-sensitive securities have thrived thus far in 2018. Not only was the market value of U.S. common stock recently up by 4.5% since year-end 2017, but a composite high-yield bond spread narrowed by 23 basis points to 336 bp. The latter brings attention to how the accompanying composite speculative-grade bond yield fell from year-end 2017's 5.82% to a recent 5.72% despite the 5-year Treasury yield's increase from 2.21% to 2.39%, respectively.

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

Weekly Market Outlook: Stocks and Spreads May Transcend Higher Treasury Yields

Markets now focus on early 2018's climb by Treasury bond yields to heights last observed in March 2017. Though the 10-year U.S. Treasury yield climbed from year-end 2017's 2.41% to a recent 2.55%, the latter resembles the 2.6% average predicted for 2018's first quarter by the Blue Chip Financial consensus of late December 2017. Moreover, the 10-year Treasury yield still lags its 2.74% average of the six-monthsended March 2014 that coincided with the taper tantrum.

January 2018 Pdf John Lonski, Njundu Sanneh, Franklin Kim, Yukyung Choi, Kathryn Asher, Reka Sulyok, Alaistair Chan, Katrina Ell
Presentation

IFRS 9 Scenario Implementation and ECL Calculation for Retail Portfolios Presentation Slides

In this presentation, Dr. Olga Loiseau-Aslanidi and Alaistair Chan discuss methods for incorporating forward-looking macroeconomic information to meet IFRS 9 impairment calculation requirements. Our economists will address the probability-weighted aspects of IFRS 9 using Moody's Analytics economic scenarios. The team will also discuss our modeling approach for calculating expected credit losses for retail lending portfolios.

October 2017 Pdf Dr. Olga Loiseau-Aslanidi, Alaistair Chan
Article

Weekly Market Outlook: Jobless Rate's Waning Influence on Inflation and the Fed

The minutes of the July 25-26 meeting of the FOMC indicated that Fed policymakers have become increasingly concerned about persistently soft consumer prices despite higher rates of resource utilization, including the lowest unemployment rate in 16 years. In response, fed funds futures recently assigned only a 44.4% likelihood to a year-end 2017 midpoint for the fed funds rate that is higher than its current 1.125%. Policymakers and some market participants worry that if underlying inflation slows when rates of resource utilization climb, then a destructive bout of price deflation might arrive once resource utilization rates inevitably ease.

August 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka, John Lonski, Barbara Teixeira Araujo, Alaistair Chan, Katrina Ell
Article

Weekly Market Outlook: Liquidity Buoys Corporate Credit

Long-term fundamentals suggest that interest rates will remain well under their averages of 2002-2007's recovery. If only because of an unprecedented and irreversible aging of the US population and workforce, fears of a disruptive lift-off and extended high-altitude orbit by Treasury bond yields are probably exaggerated.

July 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka, John Lonski, Katrina Ell, Barbara Teixeira Araujo, Alaistair Chan
Article

Weekly Market Outlook: Falling Jobless Rate Thins Spreads, but Fails to Spur Inflation or Spending

As recently as May 2017, the consensus expected that 2017's second quarter would end with the midpoint of the fed funds target range at 1.125% and the 10-year Treasury yield at 2.5%. Though the consensus prognostication for fed funds was spot on, its prediction of the 10-year Treasury yield will probably prove to be too high. It's doubtful that anyone who correctly foresaw a 1.125% midpoint for fed funds by mid-year also predicted what is likely to be a less-than-2.25% 10-year Treasury by the end of 2017's first half. After reaching 2.62% on the eve of March 14's hiking of fed funds to 0.875%, the benchmark Treasury yield has since eased to 2.16% on June 15, the day after the latest ratcheting up of fed funds.

June 2017 Pdf John Lonski, Franklin Kim, Njundu Sanneh, Alaistair Chan, Katrina Ell, Tomas Holinka
Article

Weekly Market Outlook: Tightening Is Toxic Once Fed Funds Tops Ten-Year

The FOMC is expected to announce a 25 bp hike in the federal funds rate's midpoint to 1.125% on Wednesday, June 14. Despite March 14's 25 bp hiking of fed funds to a 0.875% midpoint, the 10-year Treasury yield fell from March 13's 2.62% to a recent 2.20%. If the 10-year Treasury yield does not climb higher following June 14's likely rate hike, the scope for future rate hikes should narrow.

June 2017 Pdf Franklin Kim, Njundu Sanneh, John Lonski, Tomas Holinka, Katrina Ell, Alaistair Chan
Article

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
Webinar-on-Demand

EBA Scenarios for the 2016 EU-wide Stress Test

The EBA has released its 2016 EU-wide Stress Test. This webinar dissects the scenarios, considers possible narratives driving them and their probability of occurring.

April 2016 WebPage Petr Zemcik, Anna Zabrodzka, Dr. Olga Loiseau-Aslanidi
Whitepaper

Modelling and Stressing the Interest Rates Swap Curve

We present a two-step modelling and stress testing framework for the term structure of interest rates swaps that generates sensible forecasts and stressed scenarios out of sample. Our methodology is able to replicate two important features of the data: the dynamics of the spread across maturities and the alignment of the key swap rates tenor points to their corresponding government yields. Modern models of the term structure of interest rates typically fail to reproduce these and are not designed for stress testing purposes. We present results for the euro, the U.S. dollar, and British pound swap curves.

September 2013 Pdf Dr. Juan M. LicariDr. Olga Loiseau-Aslanidi, Dr. José Suárez-Lledó
Article

Modeling and Stressing the Interest Rates Swap Curve

This article presents a two-step modeling and stress testing framework for the term structure of interest rates swaps that generates sensible forecasts and stressed scenarios out of sample. The results are shown for the euro, the US dollar, and British pound swap curves.

WebPage Dr. Juan M. LicariDr. Olga Loiseau-Aslanidi, Dr. José Suárez-Lledó