The Resilience of MDB Bonds to Credit Rating Downgrades

Thea Kolasa, Steven Ongena and Chris Humphrey
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Thea Kolasa: University of Zurich - Department of Finance; Swiss Finance Institute
Chris Humphrey: ETH Zürich - Department of Humanities, Social and Political Sciences (GESS)

No 24-100, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We show that credit rating downgrades do not consistently impact multilateral development banks (MDBs) in the same way as they do firms and sovereigns. Unlike other entities, MDBs do not experience significant market reaction in bond yield spreads following credit rating downgrades. Additionally, downgrades of shareholder countries' credit ratings do not systematically affect bond yield spreads for MDBs. The study suggests that the unique attributes of MDBs, such as preferred creditor treatment and callable capital, may account for these differences. Furthermore, MDBs' bond issuance behavior is not significantly altered by credit rating downgrades.

Keywords: Development finance; bonds; multilateral development banks (search for similar items in EconPapers)
Pages: 45 pages
Date: 2024-11
New Economics Papers: this item is included in nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp24100

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