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Suppose the credit rating agencies have upgraded the ratings of a bond issued by XYZ Inc....

Suppose the credit rating agencies have upgraded the ratings of a bond issued by XYZ Inc. from speculative grade to investment grade. What effect will it have on the secondary market for this bond? What will happen to price and YTM? Use a secondary market diagram to explain your answer

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Expert Solution

When the credit rating agencies will be upgrading the rating of the bond which has been issued by the company from speculative grade to the investment grade-

A. There will be demand for the Bond because of increase in the credit rating.

B. It will also mean that the bond yield will be going down because those bonds who have better quality and investment grade does not offer high bond yield.

C. These bonds will be highly secure to invest into.

D. In secondary market for this bond common there will be a large demand for this bonds and they will be forming the part of various long-term portfolio due to their investment grade as they will be attracting Investments

E. The bond prices are going to go up as we can see that Bond yields are going down

it will lead to overall change in the way the market participants are viewing the company because when the bonds are investment grade, It would be leading to a better company reputation and higher security and it will also mean that they can be invested into for the longer period of time due to their investment grade in nature.

jeff jeffy answered 2 years ago
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