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Declining Quality of the Long Corporate Credit Universe : Implications for Plan Sponsors

November 2018

Long BBB-rated corporate credit has steadily increased in absolute and relative terms since the Financial Crisis, and now comprises 50% of the Bloomberg Barclays Long Corporate Index (Long Corporate Index), up from 38% in 2008. Many investors, particularly plan sponsors with a liability that is discounted by higher quality corporate bonds, should consider the implications of this decline in credit quality. This Insights examines the efficacy of including long BBB rated corporate bonds as part of the liability hedging opportunity set and offer suggestions for those concerned with the downward trend in quality and the inherent concentration risks posed by selecting a long corporate benchmark.

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