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Linkages Between Credit Spreads and Credit Ratings

Murat Duran () and Doruk Küçüksaraç

CBT Research Notes in Economics from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: [EN] Creditworthiness of countries, banks and other institutions are important for investors. Most widely used indicators that measure creditworthiness are the credit ratings provided by credit rating agencies and credit default swap (CDS) premiums, which are determined on financial markets. Since, in principal, these two indicators measure the same thing, they should move together and react in a similar way to the developments in the markets. This note assesses the discrepancies between these two measures and reviews whether the measures confirm each other using graphical analysis and non-parametric Wilcoxon Signed-Rank tests. The findings indicate that the credit rating agencies do not reflect the changes in the creditworthiness of the countries to the credit ratings frequently. This is especially true for the developed country ratings. Furthermore, CDS premiums tend to decline (increase) before the rating or outlook upgrades (downgrades), which might be interpreted that the ratings react very slowly to the markets. However, after the rating events, we observe an asymmetry. In the case of rating changes, CDS premiums tend to get back to their previous levels in approximately one year whereas this reversion in CDS premiums is much less pronounced in the case of outlook updates. [TR] Ulkeler, bankalar ve diger kuruluslarin kredi itibari yatirimcilar acisindan onem arz etmektedir. Kredi itibarinin en yaygin kullanilan olcutleri kredi derecelendirme kuruluslarinin verdigi kredi notlari ve finansal piyasalarda belirlenen kredi temerrüt takasi (CDS) primleridir. Ozunde ayni seyi olcen bu iki gostergenin birbirlerine benzer hareket etmeleri ve piyasa gelismelerine benzer tepkiler vermeleri beklenir. Bu not, grafikler ve parametrik olmayan Wilcoxon Isaretli Sira testi araciligiyla soz konusu olcutlerin birbirlerini ne olcude dogruladiklarini degerlendirmekte ve iki olcut arasinda olusan farklilasmalari incelemektedir. Calismada elde edilen bulgular, ulkelerin kredi itibarindaki degisimleri kredi derecelendirme kuruluslarinin kredi notlarina cok sik yansitmadigini gostermektedir. Bu davraniþ, ozellikle gelismis ulke kredi notlarinda daha belirgindir. Bunun yaninda, CDS primlerinin kredi notlari ya da gorunumlerinde gerceklesen olumlu (olumsuz) guncellemelerden once surekli olarak geriledigi (arttigi) gozlenmistir. Bu olgu kredi notlarinin piyasalardaki degisimlere cok yavas bir sekilde tepki verdigini gostermektedir. Ote yandan, kredi notu ve gorunum degisikliklerinin ardindan CDS primlerinin verdigi tepkilerde bir asimetri gozlenmektedir. Not degisimlerinin ardindan CDS primleri yaklasik bir yil icerisinde eski seviyelerine donerken, gorunum guncellemelerin ardindan CDS primlerindeki geri donus hareketi sinirli olmaktadir.

Date: 2017
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