One typical reason for spread differentials between bonds of the same rating are liquidity considerations, particularly with respect to stress situations. Generally, bonds with a large issue size, issued recently and actively traded by several market makers tend to be the most liquid. Sometimes old bonds with a small issue size, too, trade at rather tight levels. This is often the case for typical “CDO (Collateralized debt obligations) names”, that is bonds that are often included when CDOs are set up. Another reason for wide spread differentials between issuers with similar credit quality is that many market participants are concerned with potential mark-to-market losses. Therefore, rather illiquid and more volatile bonds require a higher spread, even if spread volatility is rather due to market technicals than uncertainty regarding company fundamentals. Consequently, it is natural that credit spreads differ even for bonds and issuers with the same rating.

But more importantly, only a fraction of the actual credit spread is explained by credit risk, which in turn is reflected by the rating.