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CIP Quips

Default Risk

Did You Know...

The amount bond holders can recover once a bond has defaulted can vary? Typically, the recovered amount is less than par. And because the bankruptcy process can be drawn out, investors could find themselves stuck with non-interest bearing investments for an unknown period of time. 

To gauge default risks, credit ratings are often used to determine the health of the issuer. Lower rated issues frequently are less liquid than conservative, higher-rated investment grade securities. 

The chart below illustrates default rates for the spectrum of bond ratings.


What are we thinking?

It is pretty evident which ratings class has the highest default rates. Global investment grade corporate debt has only seen one default in the last five years, while global speculative-grade bonds have defaulted 429 times in the same time period.  

It is easy for investors to be lured in by yields offered in the high yield, non-investment grade space, especially when the pace of ratings upgrades actually increased last year, but this exposure can increase your portfolio’s risk.

To mitigate this risk, the Current Income Portfolio only invests in investment grade corporate bonds and preferred securities at purchase. Our risk conscious approach includes ongoing monitoring of credit ratings, interest rate sensitivity, callability, sector mix, and structure risks - with a continued focus on income generation in both a low and rising rate environment. 



This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.


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