Jan

11

UBS Global Investment Returns Yearbook 2024, Summary Edition

The online version contains the entire Chapter 10 from the full book:

Corporate bonds and the credit premium

Corporate bonds are a major asset class with an outstanding value of some USD 44 trillion, almost half that of the value of global equities. The return to a higher interest rate environment has led many investors to re-consider their merits. This new chapter is thus timely in presenting long run evidence on corporate bonds since the 1860s from both the US and UK. Even very high-quality corporate bonds have offered a significant credit risk premium. The premium from high-yield (or junk) bonds is appreciably higher. Yield spreads of corporate over government bonds incorporate this premium but are not a measure of the expected premium because they also encapsulate expected default losses. This chapter reports on default and recovery rates over the long haul and reviews the determinants of yield spreads and default rates. Finally, it examines whether factors can help boost corporate bond returns and provide positive premia.

Charles Sorkin wonders:

The $44T estimate of the market value of corporate bonds sounds suspect. (To me, at least). I see that UBS cites some SIFMA data to produce a donut chart of US outstanding debt, but one wonders if they are including all manner of dubious Chinese securities that are effectively beyond the scope of most developed market investors.


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