INTEREST RATES, CREDIT RISK, AND INVESTOR BEHAVIOUR IN FIXED-INCOME MARKETS

This article examines how fixed-income markets and investors react to changes in benchmark interest rates and credit risk conditions. Using evidence from empirical research on sovereign bonds, corporate credit, and private-credit markets, it explains how rising or falling interest-rate cycles affect duration decisions, cross-asset allocation, and the relative attractiveness of fixed income versus equities. It also evaluates whether credit spreads adequately compensate investors for expected default losses, liquidity premia, and systematic risk across different rating categories. Findings show that credit-risk pricing is cyclical, market spreads often lead rating actions, and structural differences between sovereign bonds, corporate issuances, and private-credit instruments shape investor behaviour.