Agency Ratings in the Pfandbrief Market.

The article refers to the credit downgrading of a German bank, which caused a significant spread jump, and focuses on the potential effect of ratings on the Pfandbriefe bond market. The study is based on bond data for a four-year period, which was taken from the Salomon Smith Barney EuroBig and Merrill Lynch EMU Broad Market indexes. The four market subgroups examined are: agency-rated bond issues that are AAA and AA; and Pfandbriefe types that are conventional and jumbo. Investment risks in the Pfandbriefe market and spread levels in relation to the euro swap curve are mentioned. Risks, returns, and spread volatility are evaluated in two factor risk models. Agency ratings do not significantly affect the risk profile of jumbo issues, but do appear to have some impact on standard issues.