GET IN TOUCH

Internal rating approach for corporate bonds

4 Experts
For interest rates and derivatives.
USD 1.5 Mn.
Extra yields per year.

Client

An interest-rate-based hedge fund.

Opportunity

Our client wanted to create a credit spread portfolio of corporate bonds, which were outperforming in nature, and track its portfolio weights.

SOLUTION

Based on a detailed understanding of the client's expectations and restrictions, SG Analytics adopted the following solutions:
  • SG Analytics deployed a team of 4 interest rate and derivative experts to analyze existing fixed income products, especially the ones pertaining to corporate bonds.
  • The team created customized credit risk analytics and corporate debt structures that matched the S&P and Moody's ratings of corporate bonds.
  • The team identified discrepancies and areas where bonds appeared riskier than measured by S&P and Moody's. We recommended removing these bonds from the client's portfolio.
  • SG Analytics recommended a revamping of the portfolio with weightings of each corporate bond portfolio.

Value Delivered

►
1
SG Analytics provided a completely new model for corporate bond credit ratings, which could challenge the existing ratings by S&P and Moody's.
►
2
The client was able to conduct internal ratings and hence assessment on which bonds to go overweight and underweight in its portfolio.
►
3
The fund was able to calculate portfolio weights and refactor its portfolio in a completely new fashion, thereby earning an extra 1.5 Mn. in yields in a year's time.
 

Related Case Studies

Momentum strategy backtest on FX
Development of analyst ranking model
Factor modeling backtest for New Yorker hedge fund