The objective of this paper is to illustrate the factor investing space in corporate bonds before and during the COVID-19 crisis and is the natural extension of our prior analysis on both the new alternative credit factors and the ESG integration in credit.
We use monthly credit excess return in the EUR denominated Investment Grade bond universe for regression analysis and factor picking. ESG was making its way to becoming a mainstream factor within the Investment Grade universe and when the COVID-19 stress hit the financial markets, it displayed a “hedge-like” behavior. We had previously identified that better ESG and lower cost of capital were related, however the realization of this feature in a stress environment is worth investors’ attention.
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