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The Resilience of MDB Bonds to Credit Rating Downgrades

Author

Listed:
  • Thea Kolasa

    (University of Zurich - Department of Finance; Swiss Finance Institute)

  • Steven Ongena

    (University of Zurich)

  • Chris Humphrey

    (ETH Zürich - Department of Humanities, Social and Political Sciences (GESS))

Abstract

We show that credit rating downgrades do not consistently impact multilateral development banks (MDBs) in the same way as they do firms and sovereigns. Unlike other entities, MDBs do not experience significant market reaction in bond yield spreads following credit rating downgrades. Additionally, downgrades of shareholder countries' credit ratings do not systematically affect bond yield spreads for MDBs. The study suggests that the unique attributes of MDBs, such as preferred creditor treatment and callable capital, may account for these differences. Furthermore, MDBs' bond issuance behavior is not significantly altered by credit rating downgrades.

Suggested Citation

  • Thea Kolasa & Steven Ongena & Chris Humphrey, 2024. "The Resilience of MDB Bonds to Credit Rating Downgrades," Swiss Finance Institute Research Paper Series 24-100, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp24100
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    Keywords

    Development finance; bonds; multilateral development banks;
    All these keywords.

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