Discussion paper

DP14345 Corporate Yields: Effect of Credit Ratings and Sovereign Yields

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.

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Citation

Bevilaqua, J, G Hale and E Tallman (2020), ‘DP14345 Corporate Yields: Effect of Credit Ratings and Sovereign Yields‘, CEPR Discussion Paper No. 14345. CEPR Press, Paris & London. https://cepr.org/publications/dp14345