Microsoft PowerPoint - PoF.ppt

Rating 116

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Rating review: upgrade, downgrade (to BB+ / Ba1 or lower “fallen angel”)

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Junk bonds / high yield bonds

... bonds with a lower rating than

BBB- / Baa3 (Usually pension funds an

d other financial institutions

are not allowed to invest in junk bonds)

1 yea

r

10 years

AAA

Aaa

0.00%

1.40%

AA Aa

0.00%

1.29%

A

A

0.06%

2.17%

BBB

Baa

0.18%

4.34%

BB Ba

1.06% 17.73%

B

B

5.20% 29.02%

CCC

Caa

CC Ca

19.79% 45.10%

Cum. default prob.

S&P

Moody's Definition

High GradeMedium GradeSpeculativeDefault

Multi-period deterministic cash flows: FI securities - Credit risk