Mastering Attribution in Finance

11

Sector and credit return

11.1 Credit spreads

11.2 Sectors and credit ratings

11.3 Building sector curves

11.4 Attribution using sector curves

11.5 Attribution on Euro bond portfolios

11.6 Attribution on credit portfolios

11.7 Credit attribution without a credit curve

11.1 CREDIT SPREADS

A major source of return in many fixed income portfolios is credit or sector spread.

Securities such as UK gilts and US treasury bonds are conventionally regarded as risk-free. Although their prices may vary as market conditions change, default on a coupon or a repayment of principal is never expected to occur because of the issuer’s ability to levy taxes. Such securities are referred to as government or sovereign debt.

However, government bonds only ...