Can anyone provide some input on how to distinguish which risk is being mentioned should a questions arise. I understand that credit spread risk is the risk between a Treasury and the Corporate Bond and that spread is reflected by the economy. Downgrade risk being that the Corporate Bonds rating is downgraded. I find that these two risk can be inter-related… By downgrading an issuance, the credit spread risk increases… I am aware that certain characteristics can affect the issuing corporation that don’t affect the economy, can cause the rating to be downgraded. Thanks.
If they explicitly mention ABC company will be downgraded or something along those lines, then it is downgrade risk. But if it is just, a company’s fundamentals are deteriorating, or the economy is going bad, then it is credit spread risk.