Two years ago the average rating difference between DBRS and Moody’s over 17 covered bond programmes was 2.4 notches, but according to Christoph Anders at DZ Bank the difference is now only 0.4.
DBRS rates through the credit cycle, and it correctly anticipated the improvement in credit fundamentals as the sovereign crisis has abated. But as credit conditions improved Moody’s ratings have notched higher — a move which can’t have gone unnoticed by the issuers which pay the fees and choose the rating agency.
That matters all the more as the market for agencies has contracted. Whereas two years ago most investors in a survey preferred more than one rating, the majority required only one rating last year.
UniCredit was the most recent issuer to move when in April it swapped Fitch, which rated its programme AA+ with 15.6% overcollateralization , for Moody’s which required only 3% OC for an Aa2 rating.
Arguably, it’s not Moody’s which has changed, but S&P and Fitch which have been slow to upgrade. The exclusion of covered bonds from resolution is a strong argument for better credit, a change which Moody’s was quick to see.
With the ECB buying every eurozone deal, credit fundamentals have become less important to pricing — and investors less concerned about the information a rating can provide. But when the central bank stops buying, as it surely will, the best rating may matter less than a trusted rating.