Methodology note
Rating watch and outlook notching
A negative watch or outlook signals that an agency may downgrade a bond. Notching treats that signal as a downgrade in advance, moving the grade down a stated number of notches for the limit test. A BBB- bond on negative watch, notched once, reads BB+ and falls below an investment-grade floor before the agency acts.
Watch versus outlook
A rating watch means the agency is reviewing the rating now. An outlook is its view of the likely direction over a longer period.
A policy can notch the two differently, or not at all. Whatever it chooses, the choice changes results before any rating does.
How the registry handles it
Watch and outlook are ignored unless the organisation enables notching. When enabled, a negative watch or outlook moves the grade down the stated number of notches.
The organisation names the fields that carry the watch and the outlook. Every result discloses the policy it was judged under, including the notching, so a breach caused by notching is visible as such.
Pitfall: breaches no agency made
A notched breach is real for the policy, but the manager can point to an unchanged rating. Decide in advance whether the policy means notching as a hard rule.
Notching is set for the whole organisation, so it applies to every credit rule at once. Agree it with the policy owner, not mandate by mandate.
The example
Three holdings: 120 rated BBB- on negative watch, 100 rated BBB- with a negative outlook, and 780 rated A. The organisation notches a negative watch by one notch and an outlook by none.
The watched bond reads BB+, below a BBB- floor, and its 12% breaches a 10% cap. The bond with a negative outlook stays at BBB- and passes.
Worked example
One notch for a negative watch moves a BBB- bond to BB+, so its 12% counts below the floor and breaches a 10% cap; the negative outlook is not notched.
Rule template:credit_quality minimumGrade: BBB-
Bounds: hard max 10%
| Holding | Market value | RATING_SP | WATCH | OUTLOOK |
|---|---|---|---|---|
| BBB- bond on watch | 120 | BBB- | CreditWatch Negative | (blank) |
| BBB- bond, negative outlook | 100 | BBB- | (blank) | Negative |
| A-rated bonds | 780 | A | (blank) | (blank) |
| Rating providers | Split ratings | Watch / outlook notching |
|---|---|---|
| SP (RATING_SP) | median | enabled: 1 notch |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| Credit quality | Breach | 12% | ≤ 10% | -2% | ABOVE_HARD_MAXIMUM |
ABOVE_HARD_MAXIMUM: The measured value exceeds the approved hard maximum, beyond any stated tolerance.
Largest contributors: Credit quality → BBB- bond on watch (BB+) 12%
Computed at build time by the Acclimetry rule engine (backend commit 8197063); the same code runs in the product.
Questions
Does a positive outlook move the grade up?
No. The registry notches only for a negative watch or outlook; a positive one leaves the grade as rated.
How many notches should a negative watch take?
The policy owner decides. Whatever the number, state it once for the organisation and apply it to every credit rule.