If credit risk is to be considered completed integrated in the market prices (integrated credit and market risk), the change in the credit rate will trigger the change in the interest rate/market value and vice-versa.
When modelling interest rates in general, and currently observed negative interest rates, two options might be considered for the evolution of their forward curve: the negative interest rates evolution continues to be smooth, with rating states neglected in practice and only reflected in continuous spreads, or has jumps, reflecting the discrete credit rating system of both the depositor and the lender.
Should the fact that pastly observed downgradings did not significantly affect the interest rates of France and USA for example, completly exclude the presence of jumps in the modelled evolution of observed negative interest rates? (Ex: Germany loosing its triple A as well)
