How To Reduce Default Risk In Bond Portfolio
Some investors are concern over the bond default risk in their portfolio.
Risk of default in bonds can be easily reduced by investing only into investment grade bonds.
The chart below shows default rate of Investment Grade and High Yield bonds since 1981.
Source: S&P's Global Fixed Income Research, GAM
From the chart, we can see that even during 2008/2009 crisis, default rate for Investment Grade bond is less than 1%.
To further reduce the risk of default, we will do due diligence to invest into bond issuers that are profitable, generate free cashflow (operating cashflow - capital expenditure) and not too highly leverage (debt to equity less than 100% for non banks).
Risk of default in bonds can be easily reduced by investing only into investment grade bonds.
The chart below shows default rate of Investment Grade and High Yield bonds since 1981.
Source: S&P's Global Fixed Income Research, GAM
From the chart, we can see that even during 2008/2009 crisis, default rate for Investment Grade bond is less than 1%.
To further reduce the risk of default, we will do due diligence to invest into bond issuers that are profitable, generate free cashflow (operating cashflow - capital expenditure) and not too highly leverage (debt to equity less than 100% for non banks).
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