Credit curves – Crucial in a crisis

The ongoing Covid-19 pandemic has triggered a structural shift in assessing risk. Its continuing aftermath has caused many firms to look at how they conduct business – and use data – with a new perspective.

Curves are a crucial component of trading, valuation and risk management in fixed income. Government bond and interest rate swap curves are integral to the rates market and are widely understood. Perhaps lesser known – but no less important to many fixed income users – are credit curves (also known as spread curves). These come in many forms: bond issuer curves; bond sector curves; loan sector curves; and credit default swap curves (single name and sector).

The peak of the crisis in March 2020 underlined the need for superior data; when the tide goes out, the shortcomings of some datasets are cruelly exposed. Banks and asset managers will need to have confidence in the data fuelling their models. Firms without such data will be at a competitive disadvantage and exposed to unwanted scrutiny.

This brief study focuses on

• The fundamentals of credit curves
• Spread curve risk example
• The future of credit curves.

Download the IHS Markit whitepaper, Credit curves – Crucial in a crisis

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