S&P Develops New Benchmark Scoring Methodology for Corporate Bonds

S&P Valuation and Risk Strategies, an independent business unit within Standard & Poor’s (S&P) that provides users with market intelligence and analytic insight for risk-driven investment analysis, has launched a new evaluation benchmark on S&P’s Global Credit Portal investor analytics platform. The new Risk-to-Price (R2P) scoring methodology is intended to help corporate bond investors determine how well they are being compensated, through yield, for the risks they are taking.

R2P incorporates cross-asset aspects of a corporate bond into ranking securities on a relative basis, intending to capture both credit and market risk. The R2P methodology models the behaviour of option-adjusted spreads in conjunction with the probability of default and the volatility of the bond. The result is a unique, cross-asset analytic for corporate bonds. The higher the R2P score, the better the securities are projected to compensate their owners relative to underlying market and credit risks.

“The Risk-to-Price score allows fixed income investors to gain a more granular perspective than ever before on how well they are being compensated for the risks they are exposed to in their portfolios,” said Michael Thompson, managing director, S&P Valuation and Risk Strategies. “We developed the methodology in direct response to the credit crisis to give investors a common vocabulary for communicating and understanding market and credit risk components of their holdings; we believe it will soon become a standard benchmark in the credit evaluation process.”


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