Comment by JumpCrisscross
2 days ago
> a small ratings agency
If you look at 10-year default rates for BBB-rated paper from the big three plus EJR, AM Best, KBRA and DBRS, you find everyone tightly clustered in the 1 to 2% range except KBRA, who was up at 4% [1]. That suggests they've historically rated junk bonds as barely investment grade. I'm assuming that's what Anthropic was hoping for.
[1] https://www.ft.com/content/d97e1e86-1e90-4c5c-b972-052d43a36...
1-2 percent seems so tiny that it's incredibly low risk. Am I misreading that stat?
You’re not. That’s why BBB is investment grade. (When you get to A, the default rate falls to 0.1 to 0.5 percent, AA only DBRS with a 1% default rate and AAA with none in that period.)
Go a step down to BB and you’re talking like one in twenty offs of default. (Unless it’s DBRS, in which case it’s one in three.)
Note that default doesn’t mean you lose everything. Conventional recovery estimates are 40%. But the idea of investment grade is you can basically assume that after taking into account interest paid on a portfolio, you should never lose capital.