 Switching interest rate sensitivity regimes of U.S. CorporatesMariya Gubareva () and Maria Borges () The North American Journal of Economics and Finance, 2020, vol. 54, issue C Abstract: We study interest rate sensitivities of U.S. investment grade BBB-rated and high yield corporate bonds over the period of 2001–2016. Our methodology assesses the capital gains of corporate bond portfolios and risk-free government bond portfolios, using average coupon and blended yield indices for the U.S. market. For both, U.S. BBB and high yield corporate bonds, we evidence the switching, from positive to negative interest rate sensitivity, occurring over the transition from the normal economic conditions to the periods of economic distress and vice-versa. The proposed theoretical explanation of such binary behavior posits an interrelation between interest rate and creditworthiness of issuers, which varies according to the phases of the business cycle. This research advances an economic understanding of interest rate risk management and sheds light on how financial institutions may develop strategies that hedge against downside risk. Keywords: Fixed income; Portfolio performance evaluation; Downside risk management; Corporate debt; Interest rate sensitivity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940818301967 DOI: 10.1016/j.najef.2018.11.017 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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