Lesson 2 of 5 · 11 min
Who invests, and where
Investors position themselves along the credit and maturity spectrums to match their future obligations and the risks they want to earn a return for.
In short
- Short horizons and the need for a cash alternative → money market instruments; distant obligations → long-term bonds.
- Pension funds and insurers favour long-maturity bonds with fixed coupons that match long-dated liabilities.
- Credit risk can be taken at any maturity to raise expected return; hedge funds and distressed debt funds sit in high yield.
- Expected return rises with credit risk: DM sovereign ≤ investment grade < high yield. HY investors often compare returns with equities.
- Foreign investors in emerging-market debt expect more than DM sovereign returns, for lower credit quality and currency risk.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.