Assessing Corporate Creditworthiness
Qualitative Factors Quantitative Factors
Non-Sovereign Credit Risk
Non-Sovereign Government Debt Agencies
Sovereign Credit Analysis
Qualitative Factors Quantitative Factors
Factors Impacting Yield Spreads
Credit spread risk is the risk of greater expected loss due to changes in credit conditions as a result of macroeconomic, market, and/or issuer-related factors. Macroeconomic Factors Market Factors Issuer-Specific Factors The Price Impact of Spread Changes
Credit Rating Agencies and Credit Ratings
Credit Ratings Credit Rating Considerations
Sources of Credit Risk
Fixed-income investors face credit risk, a form of performance risk in a contractual relationship. A borrower that fails to meet its promised interest and/or principal payment obligations under a bond or loan contract is said to be in default. A fixed-income investor seeks compensation for the expected economic loss under a potential borrower default over the…
Empirical Duration
The approaches taken so far to estimate duration and convexity statistics using mathematical formulas is often referred to as analytical duration; the measures we have covered are summarised as follows: In practice, there is another important type of duration: Fixed-income professionals often use historical data in statistical models that incorporate various factors affecting bond prices to…
Key Rate Duration as a Measure of Yield Curve Risk
Key rate duration (or partial duration) is a measure of a bond’s sensitivity to a change in the benchmark yield at a specific maturity. Such a measure is important to isolate the price responses of bonds to changes in the rates of key maturities on the benchmark yield curve. Key rate durations define a security’s price…
Bond Risk and Return Using Curve-Based Duration and Convexity
Just as with yield-based interest rate risk measures, effective duration and effective convexity can be used to estimate the percentage change in a bond’s full price for a given shift in the benchmark yield curve (∆Curve),
Curve-Based Interest Rate Risk Measures
Yield duration and convexity assume a bond’s cash flows are certain. However, if a bond has contingency features, such as embedded options, as with a callable (or puttable) bond, then future cash flows are uncertain since option exercise depends on the level of market interest rates relative to coupon interest being paid (or received). For example, the…