The Search for Relative Value in Bonds

Financial Markets and Portfolio Management, Vol. 25, No. 1, pp. 95-106, 2011

Posted: 6 Apr 2011

See all articles by Robin Grieves

Robin Grieves

University of South Carolina (Retired)

Steven V. Mann

University of South Carolina

Multiple version iconThere are 2 versions of this paper

Date Written: January 8, 2011

Abstract

Comparing asset swap spreads across bonds is a widely used tool for measuring relative value. This approach leads portfolio managers to increase their risk exposure in ways that are not transparent. Credit default swaps are utilized to demonstrate that viewing wide asset swaps as an indicator of relative value is a mirage. The paper documents the empirical regularities in the term structure of credit spreads and spread volatilities that make this result possible. In addition, we present empirical evidence of the imprint made on corporate bond returns by the widespread use of the asset swaps data.

Keywords: Credit Default Swaps (CDS), Bond portfolio, Relative value

JEL Classification: G110, G120

Suggested Citation

Grieves, Robin and Mann, Steven V., The Search for Relative Value in Bonds (January 8, 2011). Financial Markets and Portfolio Management, Vol. 25, No. 1, pp. 95-106, 2011, Available at SSRN: https://ssrn.com/abstract=1804263

Robin Grieves (Contact Author)

University of South Carolina (Retired) ( email )

Steven V. Mann

University of South Carolina ( email )

Francis M. Hipp Building
Darla Moore School of Business
Columbia, SC 29208
United States
803-777-4929 (Phone)
830-777-6876 (Fax)

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