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      Capital Gains Sensitivity of US BBB-Rated Debt to US Treasury Market: Markov-Switching Analyses

      1 , 2 , 3
      Complexity
      Hindawi Limited

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          Abstract

          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.

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          On the Pricing of Corporate Debt: The Risk Structure of Interest Rates

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            Regime Switches in Interest Rates

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              Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt

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                Author and article information

                Contributors
                (View ORCID Profile)
                Journal
                Complexity
                Complexity
                Hindawi Limited
                1076-2787
                1099-0526
                August 26 2020
                August 26 2020
                : 2020
                : 1-13
                Affiliations
                [1 ]ISCAL – Lisbon Accounting and Business School, Instituto Politécnico de Lisboa, Av. Miguel Bombarda, 20, 1069-035 Lisbon, Portugal
                [2 ]SOCIUS/CSG-Research in Social Sciences and Management, Rua Miguel Lupi, 20, 1249-078 Lisbon, Portugal
                [3 ]School of Slavonic and East European Studies, UCL-University College London, 16 Taviton Street, London WC1H 0BW, UK
                Article
                10.1155/2020/4159053
                ee8fe09e-3af5-4921-9c66-4fe71564c0bf
                © 2020

                http://creativecommons.org/licenses/by/4.0/

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