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Analyzes corporate bonds and credit instruments including investment grade, high yield debt, credit spreads (OAS, Z-spread, G-spread), ratings, defaults, callable bonds, and private credit.
How this skill is triggered — by the user, by Claude, or both
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/wealth-management:fixed-income-corporateThe summary Claude sees in its skill listing — used to decide when to auto-load this skill
Analyze corporate bonds and credit instruments including investment grade and high yield debt. This skill covers credit spread measurement (G-spread, Z-spread, OAS), credit rating frameworks, default and recovery analysis, callable bond structures, covenant analysis, and private credit fundamentals.
Analyze corporate bonds and credit instruments including investment grade and high yield debt. This skill covers credit spread measurement (G-spread, Z-spread, OAS), credit rating frameworks, default and recovery analysis, callable bond structures, covenant analysis, and private credit fundamentals.
2 — Asset Classes
both
Compensation for default risk, liquidity risk, and downgrade risk above the risk-free rate. Multiple spread measures exist with increasing precision:
G-spread (Government Spread): Bond yield minus interpolated Treasury yield of the same maturity. Simple but assumes a flat term structure between benchmark maturities.
Z-spread (Zero-Volatility Spread): The constant spread added to each point on the risk-free spot rate curve such that the sum of discounted cash flows equals the bond's market price. Superior to G-spread because it accounts for the full shape of the term structure.
OAS (Option-Adjusted Spread): For bonds with embedded options, OAS = Z-spread minus the value of the embedded option. OAS represents the "true" credit compensation after removing the option component. Requires an interest rate model to compute.
AAA/AA/A/BBB are investment grade. BB/B/CCC/CC/C/D are high yield (speculative grade). The BBB/BB boundary is the most consequential threshold — many institutional mandates prohibit sub-investment-grade holdings. A downgrade across this boundary ("fallen angel") forces selling by constrained investors.
A transition matrix shows the probability of moving from one rating to another over a 1-year horizon. A BBB-rated issuer has roughly 85-90% probability of remaining BBB, 4-5% chance of upgrade, 4-5% chance of downgrade, and a small probability (~0.2%) of default. Migration matrices are published annually by rating agencies.
Recovery rates vary by seniority: senior secured (60-65%), senior unsecured (40-50%), subordinated (20-30%).
The issuer can redeem the bond early. Call schedules specify prices and dates. Yield-to-call (YTC) is calculated using the call date and call price. Yield-to-worst (YTW) is the minimum of YTM and all possible YTCs. For callable bonds, OAS is the appropriate spread measure (not G-spread or Z-spread).
Maintenance covenants: Tested periodically (e.g., quarterly). Issuer must maintain financial ratios at all times. Common in bank loans.
Incurrence covenants: Tested only when the issuer takes a specific action (e.g., issues new debt). Common in bond indentures. Key covenants include leverage ratio (Debt/EBITDA), interest coverage (EBITDA/Interest), and restricted payments.
Direct lending by non-bank lenders to middle-market companies. Offers an illiquidity premium of 150-400bp over comparable syndicated loans. Typically features stronger covenant protection than public market deals. Valuations are mark-based (quarterly), which smooths reported volatility.
A derivative where the protection buyer pays a periodic spread and receives payment upon a credit event. CDS spreads can be used to derive market-implied default probabilities. CDS spreads are often more responsive to credit deterioration than bond spreads.
| Formula | Expression | Use Case |
|---|---|---|
| G-spread | Bond Yield - Interpolated Treasury Yield | Simple spread measure |
| Z-spread | Constant spread s: P = sum CF_t / (1+s_t+s)^t | Full curve spread |
| OAS | Z-spread - Option Cost | Spread for callable bonds |
| Expected Loss | EL = PD × LGD × EAD | Credit loss estimation |
| Recovery Rate | RR = 1 - LGD | Recovery from default |
| Yield-to-Worst | min(YTM, YTC_1, YTC_2, ...) | Conservative yield measure |
Given: A 7-year corporate bond yields 5.8%. The 7-year interpolated Treasury yield is 4.5%. The Z-spread (computed using the full spot curve) is 118bp. Calculate: G-spread and compare to Z-spread Solution: G-spread = 5.8% - 4.5% = 1.30% = 130bp Z-spread = 118bp The G-spread (130bp) exceeds the Z-spread (118bp) by 12bp. This difference arises because the G-spread uses a single interpolated benchmark point while the Z-spread properly accounts for the shape of the entire yield curve. In a steep curve environment, G-spread tends to overstate the true spread.
Given: PD = 2% (annual), LGD = 60%, EAD = $1,000,000 Calculate: Expected annual loss Solution: EL = PD × LGD × EAD EL = 0.02 × 0.60 × $1,000,000 EL = $12,000
The expected annual credit loss is $12,000, or 1.2% of the exposure. This represents the actuarial cost of credit risk — the spread must at least cover this expected loss, with additional compensation for unexpected losses and risk aversion.
See scripts/fixed_income_corporate.py for computational helpers.
npx claudepluginhub joellewis/finance_skills --plugin wealth-managementPerforms relative value analysis on bonds by combining pricing, yield curves, credit spreads, and scenario stress testing. Use when assessing bond richness/cheapness or running rate shock scenarios.
Advises on capital structure theory (M&M, trade-off, pecking order), leverage metrics, debt instruments, covenants, WACC, Basel III/IV, and ESG-linked financing. Read-only reference framework for finance professionals.
Routes credit research workflows for issuer credit review, spread regime analysis, high-yield stress monitoring, and covenant context using LLMQuant Data.