Standish recommends that a liability hedging portfolio include BBB rated issuers for a number of reasons. Consider that BBB rated credits:
- Are highly correlated with higher rated securities found in discount curves.
- Can add incremental returns to a credit portfolio.
- Represent a sizable part of the investable credit universe.
- Are motivated to maintain or improve credit quality to access capital markets.
- Provide a spread cushion for event risk relative to higher rated bonds.
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