DP14345 Corporate Yields: Effect of Credit Ratings and Sovereign Yields

Author(s): Julia Bevilaqua, Galina B Hale, Eric Tallman
Publication Date: January 2020
Keyword(s): bond, Rating, Sovereign
JEL(s): E52, F34, F36, F65
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14345

We empirically evaluate the importance of two sources of public information affecting pricing of global corporate bonds: bond ratings provided by rating agencies and sovereign yields of the issuer's country. We find that both in the cross-section of firms and over time more variation in corporate bond yields is explained by sovereign yields than by corporate bond ratings. When sovereign yields are high, their importance in pricing corporate bonds declines. In these states, for advanced economies' borrowers, the importance of corporate ratings increases. There is a small upward trend in the importance of corporate ratings over time.