The credit signals that matter most for sovereign bond spreads with split rating

We investigate how split ratings influence the information content of credit rating events on the sovereign bond markets during 2000–2012. We find that market reactions are far stronger for negative events on the inferior ratings and for positive events on the superior ratings. Such evidence suggests aversion of market participants to the ambiguity inherent in split ratings. Sovereign credit spreads are particularly responsive to negative events by S&P (the more conservative agency in the sample). Moody's positive events have a significant impact only when Moody's assigns superior pre-event ratings compared with S&P. There is little evidence that split ratings involving Fitch have any market implication.