Merrill Lynch has announced a new action-oriented rating scale for U.S. Credit Research.
Merrill Lynch has removed the “marketweight” recommendation and is adopting more relevant and simple scale which quantifies each recommendation in relation to institutional investors’ investment guidelines.
The new scale applies the same formula to underweight recommendations as it does to overweight calls, reflecting institutional investors’ ability to go short or buy protection on a credit. With credit derivatives now a larger market than corporate bonds, the model supplies a two-way rating scale to a two-way market.
“We wanted to introduce a simple ratings system to reflect the needs of hedge funds, banks and CDO managers as well as index-benchmarked funds,” said Marc Pinto, head of Americas credit research. “It’s a response to the key questions institutional investors want answers on – should I trade today at current spreads? And what is driving returns – price or yield?”