Source: The Economist: Buttonwood
Time to sweep away an artificial distinction
IMAGINE that the stockmarket was divided into two. The big investment banks—Goldman Sachs, Morgan Stanley and Bank of America Merrill Lynch—would create lists of the shares that they liked. These approved shares would be classed as IB, for investment-bank-approved, and would trade on a higher valuation (ie, lower yield) than equities they did not like, which would be lumped together in the BS, or bank-shunned, category. Some investors would be prevented from owning anything but the IB shares.
The idea sounds bizarre, but such an artificial distinction does exist in the bond markets, where the big ratings agencies class debt issues on a scale from AAA, the highest class, to D, for bonds in default. Bonds rated BBB- or higher are classified as investment grade (IG) whereas those rated BB+ or below are regarded as speculative, or more popularly, junk bonds. Some investors will not touch junk bonds at all; most bond funds focus on either IG bonds or junk. Den Rest des Beitrags lesen »