Issuers with a lower credit quality
credit quality
However, the study by Desclée and Rosten (2002) also finds that correlations of bonds from one issuer, but in differing currencies, significantly depend on spread levels. The bonds of companies with a lower credit quality and higher spreads like Ford (F), tend to show a high degree of comovement across currencies, as previous posts illustrate. Despite the noise that results from using daily observations the correlation of the daily spread changes of the two selected Dollar and Euro bonds was a highly significant 0.80. For a typical low spread name like General Electric (GE) we obtained a correlation of 0.00, meaning we were not able to detect any comovement between the daily spread changes of Dollar and Euro bonds, as can be seen from our experience. If we conclude that the spread changes of low spread names typically are not significantly correlated, the empirical results suggest that issue-specific characteristics tend to have more influence on
spread changes than issuer-specific information for low spread names.
credit quality
Conversely, the spread changes of issuers with a lower credit quality seem to depend on issuer-specific information, and thus are significantly correlated across currencies.
On the sector level, Desclée and Rosten (2002) obtained similar results. Whereas the spread changes of low spread credit sectors like agencies, foreign sovereigns or supranationals are rather uncorrelated across currencies, utilities, financials and particularly industrials exhibit positive correlations.
