PT - JOURNAL ARTICLE AU - Robert S. Goldberg AU - Ehud I. Ronn TI - Intra-Market Correlations in the Bond Markets: <em>Extending Empirical Regularities from the Equity Markets</em> AID - 10.3905/jfi.2018.27.3.023 DP - 2017 Dec 31 TA - The Journal of Fixed Income PG - 23--36 VI - 27 IP - 3 4099 - https://pm-research.com/content/27/3/23.short 4100 - https://pm-research.com/content/27/3/23.full AB - Capital markets in general, and equity markets in particular, exhibit a well-known phenomenon: During times of distress, intra-market correlations tighten, as assets exhibit greater sensitivity to the “systematic factor.” This paper extends that analysis to corporate bonds, examining intra-market correlation of both yields and yield spreads. The intra-market correlations of bond rates, as represented by the sum of Treasury rates and CDS levels, do not show similar behavior, as the corporate component is overwhelmed by the effect of Treasury rates on the correlation. However, intra-market correlations of corporate spreads, as represented by liquid corporate CDS levels, tightened during the recent crisis. These results constitute a potential roadmap for construction of optimal bond portfolios and execution of active strategies. Whereas most components of capital markets have substantially recovered from crisis magnitudes, our analysis of pair-wise CDS correlations demonstrates partial recovery—but, as of 2015, not yet to pre-crisis levels.TOPICS: Fixed income and structured finance, performance measurement, financial crises and financial market history