Credit Portfolio Management in a Turning Rates Environment

15 Pages Posted: 7 Dec 2013

See all articles by Arthur M. Berd

Arthur M. Berd

General Quantitative, LLC; The Journal of Investment Strategies

Elena Ranguelova

Investcorp

Antonio Silva

Barclays

Date Written: December 5, 2013

Abstract

We give a detailed account of correlations between credit sector/quality and treasury curve factors, using the robust framework of the Barclays POINT® Global Risk Model. Consistent with earlier studies, we find a strong negative correlation between sector spreads and rate shifts. However, we also observe that the correlations between spreads and Treasury twists reversed recently, which is likely attributable to the Fed’s ongoing quantitative easing. We also find that short-term effective durations in the banking industry are now significantly lower than historical patterns would indicate. Our findings are relevant for credit portfolio managers contemplating the impact of rising interest rates and steepening Treasury curve on corporate bond portfolios.

Keywords: portfolio management, credit risk

Suggested Citation

Berd, Arthur M. and Ranguelova, Elena and Silva, Antonio, Credit Portfolio Management in a Turning Rates Environment (December 5, 2013). Available at SSRN: https://ssrn.com/abstract=2364005 or http://dx.doi.org/10.2139/ssrn.2364005

Arthur M. Berd (Contact Author)

General Quantitative, LLC ( email )

551 Madison Ave Suite 1202
New York, NY 10022
United States

The Journal of Investment Strategies ( email )

Haymarket House
28-29 Haymarket
London, SW1Y 4RX
United Kingdom

HOME PAGE: http://www.risk.net/type/journal/source/journal-of-investment-strategies

Elena Ranguelova

Investcorp ( email )

United States

Antonio Silva

Barclays ( email )

745 7th Avenue
New York, NY 10019
United States

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