Capital Gains Sensitivity of U.S. BBB-rated Debt: a Markov-Switching Application

Resumo/Abstract: We reexamine the relationship between credit spreads and interest rates from a capital-gain perspective of bonds portfolia. Capital-gain sensitivity between U.S. BBB-rated and Treasury bonds is weak and positive in normal periods, but strong and negative during recessions. In the upwards phase of business cycles, changes in interest rates are fully reflected in the bond yields, leaving spreads unchanged, while in the downwards phase rates and spreads move in opposite directions. This alternation between two distinct regimes reconciles a long-standing division in the literature. We then discuss the efficiency of shorting Treasury bonds as a hedging strategy and policy suggestions.

Outros seminários / Other seminars: Programa completo / Full programme.

17/05/2019 17h00 Sala 115
Growth Theory under Deaton's Consumption Heuristic - Orlando Gomes (ISCAL-IPL)
Socially Responsible Investment Portfolios in GIIPS Countries: A Multifactor Approach - Irene Guia Arraiano (ISCAL-IPL)
Capital Gains Sensitivity of U.S. BBB-rated Debt: a Markov-Switching Application - Mariya Gubareva (ISCAL-IPL / SOCIUS-CSG)