Re-Examining the Credit Premium

Using the Ibbotson/Sinquefield data documenting the returns of long-term corporate and government bonds, Asvanunt and Richardson [2017] find a sizable investment-grade credit premium that is also statistically significant after accounting for exposure to equity, size, value and momentum factors. In this piece, we focus on the Ibbotson/Sinquefield data starting in 1969 when the series began directly referencing the Salomon Brothers High-Grade Long-Term Corporate Bond Index spliced with Bloomberg/Barclay's data starting in August 1988 and separately the Bloomberg/Barclay's data going back to 1975. For both series, we find a weaker credit premium that is not statistically significant after adjusting for equity market factors. Consequently, we find that corporate bonds are duplicative in portfolios that already include stocks and government bonds and therefore have not improved portfolio efficiency