Category Archives: Credit Policy analysis

Bridging the Volatility Gap between IG and HY

The goal of the S&P U.S. High Yield Low Volatility Corporate Bond Index is to construct a high-yield bond portfolio with low credit risk and low return volatility by applying a low volatility factor.  Does the index methodology truly deliver the effect of reducing volatility?  The back-tested results of the 17-year period ending Feb. 28, 2017, show that the S&P U.S. High Yield Low Volatility Corporate Bond Index may offer an intersection that bridges the volatility gap between the high-yield and investment-grade bond sectors, with increased return efficiency. Read more

Signs of global liquidity tightening for emerging markets

Global liquidity conditions may have begun to tighten for emerging market economies (EMEs), according to updated data from the Bank for International Settlements. BIS General Manager Jaime Caruana detailed highlights from the latest global liquidity indicators, a measure of the ease of financing in global financial markets, in a lecture at the London School of Economics’ Systemic Risk Centre.

The stock of US dollar-denominated debt of non-banks outside the United States is an important gauge of global liquidity. That stock stood at $9.8 trillion at the end of September 2015, unchanged from the end of June. US dollar-denominated debt of non-banks in EMEs also held steady in the third quarter of 2015, at $3.3 trillion. Q3 marked the first time since 2009 that the measure, which is linked to the strength or weakness of the dollar, stopped increasing. Read more

IASB Investor perspective: ‘Taking a measured approach’

The question of how best to measure an asset or liability (cost versus current value) always provokes a heated debate. In this article Steve Cooper, a member of the IASB, explains the IASB’s proposals on measurement that are part of the Conceptual Framework project.

In particular, Cooper discusses the factors that the IASB should consider when selecting a measurement method.

Click here for the article


CalPERS gives its managers ESG ultimatum

In what promises to be a transformational moment for ESG integration and investment manager accountability, CalPERS will require all of its managers to identify and articulate ESG in their investment processes.

CalPERS staff led by Anne Simpson, senior portfolio manager and director of global governance, presented the ESG manager expectations, and draft sustainable investment guidelines, to the investment committee this week.


Read more

Did you know : CCRA curriculum covers ESG principles from Equator Principle Association :


What Drives Bank Funding Spreads?


What Drives Bank Funding Spreads?  Thomas B. King and Kurt F. Lewis

We use matched, bank-level panel data on Libor submissions and credit default swaps to decompose bank-funding spreads at several maturities into components reflecting counterparty credit risk and funding-market liquidity. To account for the possibility that banks may strategically misreport their funding rates in the Libor survey, we nest our decomposition within a model of the costs and benefits of lying. We find that Libor spreads typically consist mostly of a liquidity premium and that this premium declined at short maturities following Federal Reserve interventions in bank funding markets. At longer maturities, credit risk explains much of the time variation in Libor, reflecting in part fluctuations in the degree to which default risk is priced in the interbank market. Our results are consistent with banks both under- and over-reporting their funding costs during the crisis but suggest that the incidence of this behavior may have subsequently declined.  Read more

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Revisiting The Asian Financial Crisis

I’ve received dozens of inquiries about the Asian Financial Crisis and its relevance to current market volatility, especially given recent Russian developments.  As a result of this interest, John Wiley & Sons has graciously released an electronic copy of my chapter about the 1997-1998 crisis.  Click the link below to download the PDF:

“The Asian Financial Crisis: The Mirage of a Miracle”


Trends in Sovereign Credit Risk Assessment

The Asian Institute of Chartered Bankers has just published “A Best Practice Approach to Modeling Sovereign Defaults” in the December 2014 issue of its Banking Insight magazine. Since the article, which I co-authored with my colleagues Suresh Sankaran and Dr. Clement Ooi, was targetted toward the Asia market, it is helpful to emphasize some of the most important points in modeling sovereign default risk from a world-wide perspective. There are three key points in modeling sovereign default risk that we explain in the rest of this article:

  • The credit default swap market is a very problematic source of credit information and, at best, it is reliable only for a short list of reference names.
  • The conflict of interest faced by legacy rating agencies is even more extreme in the sovereign case than it is in the well-documented corporate and structured products markets.
  • Modern statistical modeling techniques are best practice and the only realistic alternative to the credit default swap market and legacy credit ratings.

We outline the reasons for these assertions in the rest of this note. Read more


Howard Marks – Memo on Lessons on oil

Read the full memo here

HOWARD MARKS – Co-Chairman, Oak Tree
Since the formation of Oaktree in 1995, Mr. Marks has been responsible for ensuring the firm’s adherence to its core investment philosophy; communicating closely with clients concerning products and strategies; and contributing his experience to big-picture decisions relating to investments and corporate direction. From 1985 until 1995, Mr. Marks led the groups at The TCW Group, Inc. that were responsible for investments in distressed debt, high yield bonds, and convertible securities. He was also Chief Investment Officer for Domestic Fixed Income at TCW. Previously, Mr. Marks was with Citicorp Investment Management for 16 years, where from 1978 to 1985 he was Vice President and senior portfolio manager in charge of convertible and high yield securities. Between 1969 and 1978, he was an equity research analyst and, subsequently, Citicorp’s Director of Research. Mr. Marks holds a B.S.Ec. degree cum laude from the Wharton School of the University of Pennsylvania with a major in finance and an M.B.A. in accounting and marketing from the Booth School of Business of the University of Chicago, where he received the George Hay Brown Prize.

Credit Supply and the Housing Boom

The housing boom that preceded the Great Recession was due to an increase in credit supply driven by looser lending constraints in the mortgage market. This view on the fundamental drivers of the boom is consistent with four empirical observations: the unprecedented rise in home prices and household debt, the stability of debt relative to house values, and the fall in mortgage rates. These facts are difficult to reconcile with the popular view that attributes the housing boom to looser borrowing constraints associated with lower collateral requirements. In fact, a slackening of collateral constraints at the peak of the lending cycle triggers a fall in home prices in our framework, providing a novel perspective on the possible origins of the bust.  Read more

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Lessons Learned From 20 Years Of Rating Global Project Finance Debt – S&P

It has often been said that those who fail to learn from history are doomed to repeat it. The global project finance sector can perhaps be included among those who have learned from experience. The sector learned some hard lessons in its pioneering days, such as how to counter market exposure risk–the biggest cause of default–and how to strengthen a project’s structure to provide the necessary… More


Growing NPAs in Banks: Efficacy of Ratings, Accountability & Transparency of Credit Rating Agencies

Download the presentation by Mr. Jagannadham Thunuguntla
Head of Research, SMC Global Securities Ltd

Growing NPAs in Banks: Efficacy of Ratings, Accountability & Transparency of Credit Rating Agencies

The Effects Of Big Data On Economic And Credit Research – S&P

Tune in to any business channel on TV or flip open any financial journal, and it probably won’t be long before you hear or find a reference to “big data.” What you won’t find as often is a definition of the term or what it truly means in any context. So what exactly is big data, and why is it such a big deal? More


2015 U.S. Corporate Credit Outlook: Generally Stable, But Risks Are Rising

2015 U.S. Corporate Credit Outlook: Generally Stable, But Risks Are Rising

Our credit outlook for U.S. corporate ratings in 2015 is generally stable. We expect continued U.S. economic improvement to counteract slower growth overseas. We also see U.S. corporate revenue continuing to grow in the mid-single digits in 2015, in line with aggregate nominal economic growth prospects. Although the sharp decline in oil prices will weigh on energy sector conditions, it will immediately benefit airlines, trucking, and auto manufacturers, while lowering energy costs for many other segments of the economy. It could also boost consumer spending in 2015 and 2016, but stronger income gains are likely needed for more robust long-term growth. We forecast that corporate refinancings will remain manageable in 2015 because protracted low interest rates and credit-friendly borrowing conditions have allowed many companies to push out maturities. However, U.S. interest rates are reaching an inflection point, and we expect the Federal Reserve to make its first policy interest rate increase in second-quarter 2015.

Attend our Live Facebook Q&A Event – Careers in Credit and Banking, on 30th Jan 2015, 4pm IST at

Economic Conditions Snapshot, December 2014: McKinsey Global Survey results

Geopolitical instability persists as a top risk to global growth, as it has been all year—and especially in North America. Yet few executives say it will affect their companies’ plans for 2015.

December 2014

Geopolitical concerns remain paramount as a risk to growth for executives, whose optimism for the global economy in early 2014 has faded over the course of the year. This is particularly true in North America, where respondents to McKinsey’s newest survey on economic conditions are most glum about the world economy’s prospects—even as they report consistent improvements at home.1 Despite these concerns, few executives say geopolitical issues will meaningfully affect their companies’ strategic and financial-planning decisions for 2015. But heading into a new year, respondents anticipate other problems on the horizon: volatile exchange rates and oil prices (more acute concerns among emerging-economy executives) and cybersecurity attacks, which respondents in North America are the likeliest to expect as a potential economic shock in the next 12 months. Read more

Attend our Live Facebook Q&A Event – Careers in Credit and Banking, on 30th Jan 2015, 4pm IST at


1:30 pm Singapore/Hong Kong time, 4:30 pm Melbourne/Sydney time

What is the fossil fuel debate?
What are the current challenges in the market?
Is this a threat to asset owners?

o What risks is your portfolio facing?
o What strategies should asset owners be adopting or considering in dealing with this very stormy topic?
o Can you afford to just do nothing?
o Does divestment make sense?
Climate change and the fossil fuel debate. Is it just hot air or a real threat to asset owners?
Friday, 30 January 2015
1:30 pm Singapore/Hong Kong time (GMT+8)
4:30 pm Melbourne/Sydney time (GMT+11)
Mamadou-Abou Sarr, Global Head of ESG, Northern Trust Asset Management
Paula DiPerna, Special Advisor, CDP North America
Jessica Robinson, CEO, ASRIA
Leigh Powell, Editor, AsianInvestor
Register :

Asset Management at Northern Trust comprises Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc. and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.

About Northern Trust:
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institutions, families, and individuals worldwide. Chicago-based Northern Trust has offices in 19 states, Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2014, Northern Trust had assets under custody of US$5.9 trillion, and assets under investment management of US$923.3 billion. For 125 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit and follow us on Twitter @NorthernTrust.

Leigh Powell
Editor, AsianInvestor
Speakers: Mamadou-Abou Sarr
Global Head of ESG, Northern Trust Asset ManagementPaula DiPerna
Special Advisor, CDP North AmericaJessica Robinson

Attend our Live Facebook Q&A Event – Careers in Credit and Banking, on 30th Jan 2015, 4pm IST at


What’s Ahead For European Sovereigns In 2015

The eurozone appears to be in a contradictory state of affairs. Long-term government bond yields have dropped to all-time lows, despite increases in government debt. More