ANZ Bank to launch corporate risk index today

ANZ Bank will today launch a new index to gauge corporate health, one that shows investors the default risk they face when they buy New Zealand bonds.

ANZ's Sydney-based head of credit research for capital markets, Kate Birchall, said the bank would launch a New Zealand version of its Crystal credit quality index, the Dominion Post reported today.

The index will be based on the average credit quality of the top 20 listed companies.

Ms Birchall said the New Zealand index would show corporate credit quality had improved since this time last year.

That would help explain why the amount of interest investors received for corporate bonds, in excess of the risk-free rate measured by the interest paid on government bonds, had dropped.

Unlike traditional credit ratings services, the new Crystal index reflects sharemarket sentiment toward companies.

It is founded on the premise that equity markets are the most efficient financial markets, reflecting widespread analysis of a company's fortunes, so equity movements are the first signal of changes in risks for bond investors.

"We rely on the tens of thousands of equity analysts around the world. They tend to be best informed about companies," Ms Birchall told the newspaper.

Rather than an increase in share price, it is an increase in trading volatility that indicates a higher risk.

A high-index value would indicate a low risk of default among those leading bond issuers, and a declining index would indicate rising risk.

This type of index has been gaining in popularity since the Moody's-owned KMV introduced its EDF (expected default frequency) credit measure in the late 1980s.

ANZ was the first to introduce such measures specifically designed for Australia and New Zealand.

- NZPA