Credit ratings

Credit Risk: Modeling the Chance of Default

In Chapter 39 we valued default risk by modeling the firm’s assets, earnings, and cash. That is the “look inside the company” approach. Chapter 40 takes a completely different path. Instead of trying to understand why a company might default, just model default as a random external event. Roll a die. If you get a 1, the company defaults. Simple.

How to Trade EM Credit: The Sweet Spot and What Buffett Would Do

Here’s the thing about EM credit that nobody tells you upfront: the structural trade is basically dead. You’d think that because emerging markets grow faster than developed ones, their credit spreads would keep compressing over time. More growth, less risk, tighter spreads. Makes sense, right?