Pick a shock regime to see how VCLT and SCHQ route to different outcomes.
Credit risk vs. pure duration risk: why VCLT and SCHQ diverge in recessions and rate shocks
VCLT
IG corporates
Treasury duration
+ credit spread
SCHQ
U.S. Treasuries
Treasury duration
no spread
Shock
flight-to-quality
VCLT
sells off
spread widens
SCHQ
rallies
flight-to-quality
▼
▲
Shock regime
Recession / flight-to-quality
Pure rate-shock (credit stable)
down
rally
mild down (shorter duration)
structural link (no spread component)