Investment-grade instruments

Specific returns are residual returns not explained by common factors. Common factors returns are typically larger than specific returns for higher quality investment-grade instruments this is no longer the case in the lower portion of the investment grade segment and for high-yield instruments. 

The treatment of unrated paper for investment grade indices falls under this category. Many index providers include unrated paper in investment grade indices on the premise that if these instruments were to be rated they would end up in the investment grade. The other area where many index providers often vary from each other is the treatment of splitrated bonds, both for the rating tier they represent, as well as to determine whether they form part of the investment grade universe or not. 

One response to this was that the markets changed the protocol for quoting CDS contracts. A new format for CDS in the North American market became effective from April 8, 2009. The new instruments traded with an upfront payment and fixed coupons of either 100 basis points for investment grade reference names or 500 basis points for sub-investment grade names. 

It is also true that in assembling a competitive bid, a vendor may not invest in materials equal in quality to the buyer s real desires. Bid documents should therefore spell out any special requirements. Examples would include the use of certain grades of material, the identification of preferred vendors for instrumentation and control valves, and the banning of certain types of valve. Failure to cover such items in bid documents or purchase orders has caused the need to re-engineer a number of packaged units. 

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