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Author: howardgt One star, 50 posts 10+ Year Anniversary! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: S&P vs. Moody's ratings Date: 5/22/2009 1:14 AM
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Wendy wrote:

Here is a comparison of the ratings. Moody's A rating is not equivalent to S&P's A rating. Moody's A is equivalent to the lowest investment grade of S&P, BBB.

Moody's S&P
Aaa AAA
Aa1 AA+
Aa2 AA
Aa3 AA-
Aa A+
A1 A
A2 A-
A3 BBB+
A BBB

I had a problem constructing the yield curve because S&P and Moody's give very different ratings to the same bonds. Look at the following list. You will see that Moody's A1 bonds have S&P ratings from AA down to A+.


I think you have a couple of extra Moody’s ratings in there (“Aa” and “A”). Here are equivalent ratings I have used for corporate bonds:

Moody's S&P
Aaa AAA
Aa1 AA+
Aa2 AA
Aa3 AA-
A1 A+
A2 A
A3 A-
Baa1 BBB+
Baa2 BBB
Baa3 BBB-

http://en.wikipedia.org/wiki/Bond_credit_rating

For example:
Issue: Wachovia Corp Global Mtn Sr Nt 5.5% 2013 Listed
CUSIP/ISIN: 92976WBJ4/ US92976WBJ45
Price: 101.133 YTM: 5.176

Moody's Ratings Information
Long Term Rating: A1 effective 03/25/2009

S&P Ratings Information
Long Term Rating: AA effective 01/05/2009 13:55:38

CreditWatch: NEG effective 05/04/2009 14:39:31

Moody's rating is 3 rungs below S&P's. Although S&P has a negative credit watch on this, dropping it 3 rungs in just a few months seems...extreme.



So, with the corrected ratings, Moody’s is now 2 rungs lower, and with an S&P negative credit watch outstanding, possibly only 1 rating difference.

Moody’s being 1 or 2 ratings lower is consistent with what I have found during the 6 weeks that I've been doing regular scans (I purchased 11 issues so far).

I’m finding Moody’s the more conservative rating agency, even though I don’t trust either.

As an aside, I’m finding big differences in yields (and prices) from day to day and for different maturities (within the same issue). It looks to me like prices (and yields) depend on the liquidity of the particular issue and how bad someone needs (or wants) to sell.

I’ve learnt, “it pays to be patient” at this game.

Howard
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