The Ghost of a Rating Downgrade : What happens to Borrowing Costs When a Government Loses its Investment Grade Credit Rating?
Since the global financial crisis and the end of the commodity super-cycle, weak growth and countercyclical fiscal policy have contributed to deteriorating public finances in many countries across the globe. As public debt burdens rose, credit rati...
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| Format: | Working Paper |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/07/26549943/ghost-rating-downgrade-happens-borrowing-costs-government-loses-investment-grade-credit-rating http://hdl.handle.net/10986/24672 |
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okr-10986-246722021-05-25T08:49:58Z The Ghost of a Rating Downgrade : What happens to Borrowing Costs When a Government Loses its Investment Grade Credit Rating? Hanusch, Marek Hassan, Shakill Algu, Yashvir Soobyah, Luchelle Kranz, Alexander debt burden credit ratings sovereign debt borrowing costs Since the global financial crisis and the end of the commodity super-cycle, weak growth and countercyclical fiscal policy have contributed to deteriorating public finances in many countries across the globe. As public debt burdens rose, credit ratings deteriorated and a number of countries have been downgraded from investment to sub-investment ('junk') grade. Rating downgrades continue to haunt countries in a world of low growth. This paper examines the effect of such downgrades on short-term government borrowing costs, using a sample of 20 countries between 1998 and 2015. The analysis suggests that a downgrade to sub-investment grade by one major rating agency increased Treasury bill yields by 138 basis points on average. Should a second rater follow suit, Treasury bill rates increase by another 56 basis points (although this effect is not statistically significant). The analysis does not detect any equivalent impacts for local currency ratings, even though T-bills tend to be issued in domestic currency, although this may be due to sample limitations and is therefore not conclusive. 2016-07-12T19:27:17Z 2016-07-12T19:27:17Z 2016-06-28 Working Paper http://documents.worldbank.org/curated/en/2016/07/26549943/ghost-rating-downgrade-happens-borrowing-costs-government-loses-investment-grade-credit-rating http://hdl.handle.net/10986/24672 English en_US MFM Discussion Paper;No. 13 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Working Paper |
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Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
debt burden credit ratings sovereign debt borrowing costs |
| spellingShingle |
debt burden credit ratings sovereign debt borrowing costs Hanusch, Marek Hassan, Shakill Algu, Yashvir Soobyah, Luchelle Kranz, Alexander The Ghost of a Rating Downgrade : What happens to Borrowing Costs When a Government Loses its Investment Grade Credit Rating? |
| relation |
MFM Discussion Paper;No. 13 |
| description |
Since the global financial crisis and
the end of the commodity super-cycle, weak growth and
countercyclical fiscal policy have contributed to
deteriorating public finances in many countries across the
globe. As public debt burdens rose, credit ratings
deteriorated and a number of countries have been downgraded
from investment to sub-investment ('junk') grade.
Rating downgrades continue to haunt countries in a world of
low growth. This paper examines the effect of such
downgrades on short-term government borrowing costs, using a
sample of 20 countries between 1998 and 2015. The analysis
suggests that a downgrade to sub-investment grade by one
major rating agency increased Treasury bill yields by 138
basis points on average. Should a second rater follow suit,
Treasury bill rates increase by another 56 basis points
(although this effect is not statistically significant). The
analysis does not detect any equivalent impacts for local
currency ratings, even though T-bills tend to be issued in
domestic currency, although this may be due to sample
limitations and is therefore not conclusive. |
| format |
Working Paper |
| author |
Hanusch, Marek Hassan, Shakill Algu, Yashvir Soobyah, Luchelle Kranz, Alexander |
| author_facet |
Hanusch, Marek Hassan, Shakill Algu, Yashvir Soobyah, Luchelle Kranz, Alexander |
| author_sort |
Hanusch, Marek |
| title |
The Ghost of a Rating Downgrade : What happens to Borrowing Costs When a Government Loses its Investment Grade Credit Rating? |
| title_short |
The Ghost of a Rating Downgrade : What happens to Borrowing Costs When a Government Loses its Investment Grade Credit Rating? |
| title_full |
The Ghost of a Rating Downgrade : What happens to Borrowing Costs When a Government Loses its Investment Grade Credit Rating? |
| title_fullStr |
The Ghost of a Rating Downgrade : What happens to Borrowing Costs When a Government Loses its Investment Grade Credit Rating? |
| title_full_unstemmed |
The Ghost of a Rating Downgrade : What happens to Borrowing Costs When a Government Loses its Investment Grade Credit Rating? |
| title_sort |
ghost of a rating downgrade : what happens to borrowing costs when a government loses its investment grade credit rating? |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/07/26549943/ghost-rating-downgrade-happens-borrowing-costs-government-loses-investment-grade-credit-rating http://hdl.handle.net/10986/24672 |
| _version_ |
1764457562105708544 |