The Impact Of The Sovereign Credit Rating On Bond Markets

Since twenty-first century,with the accelerating of economic globalization,the rapid development of the financial market and the increasingly frequent free movement of capital,it creats a convenient condition for international lending among the sovereign states.At the same time,with the spread of the global financial crisis and the subsequent European debt crisis caused by the outbreak of the US subprime mortgage crisis in 2008,the role of sovereign credit rating has become increasingly prominent.Reviewing the sovereign debt crisis in Europe and the US rating downgrade event,the rating down report released by rating agencies not only throws the government foreign debt market into turmoil,but also leads to the volatility of the downgrade country's capital market,and seriously impacts on the stability of downgrade country's economic and financial market.Based on these backgrounds,this dissertation attempts to study the influence of the changes of sovereign credit rating on capital market,especially on bond market.First of all,this dissertation explores the determinants of sovereign credit rating.Through the analysis of differences and similarities of rating methods and rating systems among major rating agencies,it concludes that the indicators used in sovereign credit rating could be divided into the following four aspects: political factors,economic factors,financial factors and monetory factors,and each of these factors is decided by specific first-class indicators and second-class indicators.Secondly,this dissertation makes an empirical analysis on the influence of sovereign credit rating on bond market.Through the Grainger causality test,it concludes that there exists reciprocal causation between sovereign credit rating and treasury yield;then specifically explores the short-term impact of sovereign credit rating on bond market through the event analysis method,and it is concluded that both the upgrades and downgrades of sovereign credit rating have significant impacts on treasury yield,but the impacts of upgrades are less greater than those of downgrades,and the impacts on emerging market countries are less significant than those on developing countries,these may due to the information trasmission blocking caused by the unsound development of the emerging market countries' s financial market and the imperfect conduct machanism;finally,a fixed effect model is built to study the long-term relationship between sovereign credit rating and bond market,the research results show that in the long run,treasury market is not significant for the prediction of positive rating,but has the ability to predict the negative rating.At last,through the above quantitative and qualitative analyses,the conclusion is drawn,and this dissertation continues to make an analysis on the status quo of China's sovereign credit rating market,then explores that what we should do to resist the capital market fluctuation brought by the adjustment of sovereign credit rating and puts forward some suggestions.