The Investment Performance of Bankrupt Corporate Debt Obligations

12 Pages Posted: 15 Aug 2001

Date Written: February 2000


This report documents the historical investment performance and risk attributes of bonds that have continued to trade in the secondary market after their issuers have filed for bankruptcy. This report also introduces some revisions and innovations to the historical series behind Moody's Bankrupt Bond Index (MBBI), which serves as the benchmark for documenting these risk/return attributes. The new index series contains data on 725 debt issues of 387 issuers that have filed for bankruptcy since 1981. Briefly, this report finds that: Since 1981, MBBI has posted a 17.4% annualized total return. The standard deviation of monthly returns is roughly three times that of high yield as a whole. Systematic risk is much lower than total risk, however. The risk-return characteristics suggest that bankrupt bonds are a distinct asset class from either performing high-yield bonds or the larger class of defaulted obligations, of which they are a subset. The number of bankrupt issuers included in MBBI grew 131% in 1999 to 67. The total par value of bankrupt bonds included in MBBI rose to over US$16.3 billion, a 190% increase over 1998. Moody's Bankrupt Bond Index posted a -1.9% total return in 1999 as continued risk aversion resulted in weak demand at the same time that supply was increasing. The telecommunications sector outperformed the market by a wide margin, with a 58% average total return. In 1999 trading activity turned positive after two straight years of decline.

Keywords: Default, bankruptcy, distressed debt

JEL Classification: G10, G11

Suggested Citation

Hamilton, David T., The Investment Performance of Bankrupt Corporate Debt Obligations (February 2000). Available at SSRN: or

David T. Hamilton (Contact Author)

Moody's Analytics ( email )

7 World Trade Center
250 Greenwich Street
New York, NY 10007
United States
(212) 553-1695 (Phone)


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