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

World Bank, Washington, DC

关键词: debt burden;    credit ratings;    sovereign debt;    borrowing costs;   

RP-ID  :  106667

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Since the global financial crisis andthe end of the commodity super-cycle, weak growth andcountercyclical fiscal policy have contributed todeteriorating public finances in many countries across theglobe. As public debt burdens rose, credit ratingsdeteriorated and a number of countries have been downgradedfrom investment to sub-investment ('junk') grade.Rating downgrades continue to haunt countries in a world oflow growth. This paper examines the effect of suchdowngrades on short-term government borrowing costs, using asample of 20 countries between 1998 and 2015. The analysissuggests that a downgrade to sub-investment grade by onemajor rating agency increased Treasury bill yields by 138basis 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). Theanalysis does not detect any equivalent impacts for localcurrency ratings, even though T-bills tend to be issued indomestic currency, although this may be due to samplelimitations and is therefore not conclusive.