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Risk and Return in the Canadian Bond Market, Part II
Mar 1, 1993
In the last issue of the Barra Newsletter, we described a model which values and assesses the risk of Canadian Government bonds.(1) In this article, we will describe specific models developed for the other three sectors--Provincial, Corporate, and Municipal--of the Canadian bond market. These models are then integrated with the Canadian Government bond model to produce a comprehensive Canadian valuation and risk model broadly applicable to the Canadian domestic bond market. This article builds upon the Canadian term structure model described in Part I in the previous issue of the Barra Newsletter. Together, these articles provide a complete description of our Canadian bond valuation and risk model. The yield spread models described here provide a logical and accurate description of bond spreads. The models are built upon intuitive factors to provide an integrated and comprehensive framework for analyzing value and risk in the Canadian bond market.