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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| Format: | Article |
| Language: | English |
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Wiley
2020-01-01
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| Series: | Complexity |
| Online Access: | http://dx.doi.org/10.1155/2020/4159053 |
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| _version_ | 1832566008955535360 |
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| author | Mariya Gubareva Ilias Chondrogiannis |
| author_facet | Mariya Gubareva Ilias Chondrogiannis |
| author_sort | Mariya Gubareva |
| collection | DOAJ |
| 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. |
| format | Article |
| id | doaj-art-930c5a483cbd46769c6be24524de4120 |
| institution | Kabale University |
| issn | 1076-2787 1099-0526 |
| language | English |
| publishDate | 2020-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Complexity |
| spelling | doaj-art-930c5a483cbd46769c6be24524de41202025-02-03T01:05:22ZengWileyComplexity1076-27871099-05262020-01-01202010.1155/2020/41590534159053Capital 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 |
| spellingShingle | Mariya Gubareva Ilias Chondrogiannis Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses Complexity |
| title | 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_short | 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 |
| url | http://dx.doi.org/10.1155/2020/4159053 |
| work_keys_str_mv | AT mariyagubareva capitalgainssensitivityofusbbbrateddebttoustreasurymarketmarkovswitchinganalyses AT iliaschondrogiannis capitalgainssensitivityofusbbbrateddebttoustreasurymarketmarkovswitchinganalyses |