Work

Capturing Credit Spread Premium

Year: 2011

Type: article

Abstract: Despite high spread volatility, investment-grade credit portfolios have generated an average annual spread premium (returns net of U.S. Treasury returns and defaults) of 48 bps over the past 20 years. The authors show that relaxing a common portfolio constraint that requires selling downgraded bonds would have allowed investors to capture an average annual spread premium of 86 bps, with similar risk. Thus, adopting a downgrade-tolerant credit benchmark could generate a higher credit spread premium.

Source: Financial Analysts Journal

DOI: 10.2469/faj.v67.n3.4

Authors: Kwok-Yuen Ng, Bruce D. Phelps

Language: English

Topic: Credit Risk and Financial Regulations

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2173843391

FWCI: 2.566

Cites:

Cited by: 19

Related to: 10