The credit spread barbell

February 9, 2018

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Brett Dutton

Brett Dutton
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When constructing a liability-hedging portfolio for their pension plan, sponsors should consider the funding status risk posed by credit spread volatility in both plan assets and plan liabilities. Credit spread risk between pension assets and liabilities can't be eliminated entirely. It can, however, be mitigated. In a new research paper, Vanguard explores how using a credit spread "barbell" strategy—balancing a plan's fixed income exposure between securities of lower credit quality and those of higher credit quality—can help do that.

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