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
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2173843391
