No. of Recommendations: 0
I've been looking at the Moody's reports for some prospective bond purchases and they state that for the company in question, Moody's placed the company's long-term and short-term ratings on review for downgrade on February 15, 2012. Anyone familiar with how long this review process lasts? My assumption is that it's better for me to delay my purchase until the downgrade comes. At that point, the prices of the bonds in question may take a hit, jolting yields a bit upward. Patience may provide opportunity....
Print the post Back To Top
No. of Recommendations: 0
folgore,

The rating houses lag the market. Traders have already discounted through their pricing whatever the rating houses are responding to.

A classic instance is the piece of trash company known as GE. Back when they were rated triple-AAA, the market was pricing their debt to reflect its embedded higher risks. I.e., GE's yield was anomalously high. Then, for selfish reasons, the majors didn't knock them down as far as they should have. Recently, Moody's did whack them again, but, again, probably not as far down as they should have.

Yes, patience can be rewarded. But there's always a trade-off between information-risk and price-risk. The longer one waits for confirmation, the more adverse the price will be. So the trick is to be early, but not too early.

Charlie
Print the post Back To Top
No. of Recommendations: 0
I'm jealous you have a Moody's subscription. I could never justify the $6K given their somewhat sparse coverage.

I really like the Moody's industry-wide reports, which gives you insights into liquidity situation across a sector.

In any case, I would never count on being notified about a credit downgrade before it is already in the price of the stock. Hedge funds will trade the actual dynamics of that downgrade before Moody's ever says word number one.
Print the post Back To Top
No. of Recommendations: 0
I don't have a Moody's subscription; the reports are freebies via my Etrade and Scottrade accounts. I have no idea how long they've been offered by the brokerages; possibly it's new, possibly they've offered them for awhile. The warning for a possible downgrade of banks was made in one of the Moody's company reports I read. I doubt I would get any of their industry-wide reports.

Now of course, like you and Charlie said, any downward pressure on the bonds I'm looking at may have already occurred because of the warning given. I still can't help but think that the day the bonds I'm looking at go from being rated A to BBB, there will be some kind of drop.
Print the post Back To Top
Advertisement