Unpacking Bond Portfolio Risk with Consensus Credit Data

Fed tightening is bad news for all bonds but widening credit spreads add to the pressure for longer dated corporates, with the high yield segment most vulnerable to a default rate spike.  Mandated holders are buying short-dated bonds to hedge the impact of expanding credit spreads; discretionary holders are either selling outright or upgrading the credit profile of their portfolios.

As credit markets become more challenging and volatile, consensus credit data[1] provides a stable reference point for assessing underlying portfolio credit risk.  The following examples are based on a universe proxy for issuers of bonds tracked by the iBoxx High Yield Index.[2]

Figure 1 shows the issuer credit distribution across all seven categories.[please continue below to access full report].

Figure 1: Issuer Credit Distribution, now and 6 months ago

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    [1] Sourced from major financial institutions including most of the GSIBs.

    [2] iShares iBoxx $ High Yield Corporate Bond ETF as proxy

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    Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.