Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses

Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses

We reexamine the relationship between credit spreads and interest rates from a capital gain perspective of bond portfolio. Capital gain sensitivity between US BBB-rated bonds and Treasury bonds is weak and positive in normal periods, but strong and negative during recessions. In the upward phase of...

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Main Authors: Mariya Gubareva, Ilias Chondrogiannis
Format: Article
Language:English
Published: Hindawi-Wiley 2020-01-01
Series:Complexity
Online Access:http://dx.doi.org/10.1155/2020/4159053
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spelling doaj-930c5a483cbd46769c6be24524de41202020-11-25T03:47:06ZengHindawi-WileyComplexity1076-27871099-05262020-01-01202010.1155/2020/41590534159053Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching AnalysesMariya Gubareva0Ilias Chondrogiannis1ISCAL – Lisbon Accounting and Business School, Instituto Politécnico de Lisboa, Av. Miguel Bombarda, 20, 1069-035 Lisbon, PortugalSchool of Slavonic and East European Studies, UCL-University College London, 16 Taviton Street, London WC1H 0BW, UKWe reexamine the relationship between credit spreads and interest rates from a capital gain perspective of bond portfolio. Capital gain sensitivity between US BBB-rated bonds and Treasury bonds is weak and positive in normal periods, but strong and negative during recessions. In the upward phase of business cycles, changes in interest rates are fully reflected in the bond yields, leaving spreads unchanged, while in the downward 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.http://dx.doi.org/10.1155/2020/4159053
collection DOAJ
language English
format Article
sources DOAJ
author Mariya Gubareva
Ilias Chondrogiannis
spellingShingle Mariya Gubareva
Ilias Chondrogiannis
Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses
Complexity
author_facet Mariya Gubareva
Ilias Chondrogiannis
author_sort Mariya Gubareva
title Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses
title_short Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses
title_full Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses
title_fullStr Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses
title_full_unstemmed Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses
title_sort capital gains sensitivity of us bbb-rated debt to us treasury market: markov-switching analyses
publisher Hindawi-Wiley
series Complexity
issn 1076-2787
1099-0526
publishDate 2020-01-01
description We reexamine the relationship between credit spreads and interest rates from a capital gain perspective of bond portfolio. Capital gain sensitivity between US BBB-rated bonds and Treasury bonds is weak and positive in normal periods, but strong and negative during recessions. In the upward phase of business cycles, changes in interest rates are fully reflected in the bond yields, leaving spreads unchanged, while in the downward 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.
url http://dx.doi.org/10.1155/2020/4159053
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AT iliaschondrogiannis capitalgainssensitivityofusbbbrateddebttoustreasurymarketmarkovswitchinganalyses
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