Tuesday, 11 November 2014

Unrated Bonds


The Star Online 12 Nov 2014

1) Falling commodity prices will confer spillover benefits on taming inflationary pressures around the world, and this will pause possible rate hikes.
"Commodity prices are the wild card here. Lower commodity prices reduce inflationary pressures and justify delaying monetary policy tightening. This helps keep policy rates lower for a bit longer, as inflationary pressures are not there to warrant a quicker increase."

2) Many investors today are willing to take up unrated papers because they can actually get better yields if it doesn’t go into the market. Moving forward, unrated papers will pose a challenge to us. One is from the issuer itself. From their point of view, if they are already well-recognised, they would think there may be no need to rate their papers since they are well-recognised in the market. With a rating, the issuer would be subject to the (lower) yields in the market.

RAM: Unrated bonds to erode market share, rating agencies' market position
 Unrated bonds, or debt instruments that have not been assessed by a credit rating agency, will erode the share of the market for rated bonds as well as the credit rating agencies' market position.

"If the [unrated bonds] market becomes too big, RAM Rating Services Bhd might lose the ability to track a company's paper credit risks." Come 2015, unrated papers in the market
- can be traded to create liquidity in the financial market.
- unrated papers are allowed in the market as long as they are not transferred and traded.
- account for about 30% of the total local bond issuance

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