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Zorluk: ZorNon-Systematic and Credit Risks

An institutional portfolio manager holds a fixed-income portfolio consisting exclusively of 20-year U.S. Treasury bonds. To increase yield, the manager reallocates 30%30\% of the portfolio into BBB-rated corporate bonds with matching maturities. Which of the following best describes the resulting change in the portfolio's risk profile?

  1. The portfolio introduces non-systematic credit risk while maintaining systematic interest rate risk across both holdings.Cevap
  2. B
    The portfolio eliminates interest rate risk because corporate bond yields absorb changes in prevailing market interest rates.
  3. C
    The portfolio reduces systematic market risk while eliminating credit risk through fixed-income diversification.
  4. D
    The portfolio replaces business risk with liquidity risk because U.S. Treasuries carry higher credit default probability than BBB corporate debt.

Cevap

Reallocating a portion of a U.S. Treasury portfolio into corporate bonds introduces non-systematic credit risk while both asset types remain exposed to systematic interest rate risk.
U.S. Treasury securities carry virtually no credit default risk due to government backing, but long-term Treasuries carry substantial systematic interest rate risk. By shifting 30%30\% into BBB corporate debt, the manager introduces non-systematic credit (default) risk inherent in corporate issuers, while both the Treasury and corporate portions remain subject to systematic interest rate risk.

Adım Adım Çözüm

1
Analyze the baseline portfolio risk of long-term U.S. Treasury bonds.
U.S. Treasury bonds have virtually zero credit (default) risk but significant systematic interest rate risk due to their long duration.
U.S. government backing eliminates non-systematic issuer credit risk.
2
Analyze the risk characteristics added by BBB-rated corporate bonds.
Corporate bonds introduce non-systematic risks, specifically business, financial, and credit (default) risks associated with corporate issuers.
Corporate issuers may face financial distress or credit downgrades.
3
Synthesize the net risk profile change following reallocation.
The portfolio acquires credit risk without removing systematic interest rate risk, as fixed-rate instruments of equal maturity remain sensitive to interest rate movements.
Systematic market risks affect all fixed-income securities regardless of issuer credit quality.

Anahtar Kavram

Distinction between non-systematic credit risk and systematic interest rate risk in fixed-income portfolios.
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Konular

Non-Systematic and Credit Risks

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