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Moody’s Can Still Surprise The Market

16 February 2015 by lberuti

In the recent past, most of the rating actions by the different agencies had been well anticipated by the market, and investors’ reaction was often an illustration of the “buy the rumour, sell the news” adage. Over the week-end though, Moody’s managed to surprise the market when they upgraded ELEPOR ( EDP – Energias de Portugal SA) to Baa3 with a stable outlook (prev. Ba1 with positive outlook). The upgrade in itself was not a surprise as many analysts have argued for some time that ELEPOR’s credit profile was consistent with a mid-BBB rating (S&P changed the outlook on its BB+ rating to positive only 3 weeks ago), but the timing was definitely sooner than most were anticipating. Moody’s action means that the average rating of ELEPOR is now investment grade (IG) and the company’s bonds will qualify for the different iBoxx IG indices. That brought strong buying interest from IG funds which was only met with High Yield funds taking profit once the bonds were up 2.5 or 3 points, which in turn sent the 5 year risk premium 20bps tighter at 101.5bps. It could well only be the beginning of a volatile spell, as the company was quick to announce towards the end of the session their plan to issue 10-year bonds.