Difference between revisions of "Credit Rating versus Credit Spread"
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Latest revision as of 13:32, 26 August 2019
Credit Rating versus Credit Spread
- A Credit Rating is typically a more statistically driven measure of Credit Risk, used within a broader Credit Rating System and typically be defined on a limited Rating Scale
- A Credit Spread is a market based metric that either directly (in the case of derivative instruments such as credit default swaps) or indirectly (in the case of credit sensitive bond / loan products) derives a market implied degree of credit risk
Pros and Cons
- Market driven measures tend to respond more rapidly to new information
- Market driven measures may have excess volatility versus the actual credit risk
- Markets may be subject to various pathologies such as bubbles, cornered markets etc. which may diminish their risk sensitivity
References