Credit Risk Changes and Equity Performance During COVID
How far do equity market movements reflect credit developments during the COVID crisis?
September 16, 2020
How far do equity market movements reflect credit developments during the COVID crisis?
Consensus credit data suggests that in times of crisis, the “Solvency Boundary” between investment-grade and non-investment grade credits is more fluid than during non-crisis times. The implication for bond and equity investors is that in the current environment, not all BBB issues are the same.
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The purpose of this paper is to help raise awareness of these regulations, to highlight their potential impact and to issue a call to action.
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Equity markets have experienced near-record levels of volatility in the past few months and consensus credit risk estimates have also showed major changes recently. This analysis suggests that the link between credit risk and equity markets may be significant, especially in the current environment.
As COVID-19 unfolds, governments have announced unprecedented stimulus and support packages. Once the dust has settled and the money has been distributed, what view will lenders take on the creditworthiness of these sovereigns?
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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.
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