Comprehensive overview of the use of factor models for fixed income risk modeling.

The findings of this study highlight a number of implications for managing credit portfolios. We have observed that the investment-grade vs. high-yield distinctions should be made when assessing correlations and credit risk diversification. As spreads on speculative instruments tend to be dominated by issuer specific factors rather than market-specific factors, bonds from the same issuer in different markets tend to be highly correlated; bond correlations across markets for high-grade issuers...

In recent years, the growth of the global credit market has been spectacular. From an investor perspective, this has created many new opportunities for higher returns and diversification, but a careful management of risk is more necessary than ever. In this context, measures of credit quality are becoming an increasingly important reference. Agency ratings are a standard measure of credit quality. The question of capital requirements and the recent collapse of several high-profile large...

The European credit market, consisting mainly of euro and sterling denominated debt, is second only to the US domestic market in terms of size, influence and liquidity. Not surprisingly, European securities are becoming common in global portfolios. The recent turmoil in credit markets has shown once again that understanding risk is or should be a critical aspect of portfolio management. However, as the European credit market is a mosaic of widely different instruments, issuers, and...

In recent years, the growth of the global credit market has been spectacular. From an investor perspective, this has created many new opportunities for higher returns and diversification, but a careful management of risk is more necessary than ever. In this context, measures of credit quality are becoming an increasingly important reference. Agency ratings are a standard measure of credit quality. The question of capital  requirements and the recent collapse of several high-profile large...