Managing Credit Deterioration in Fixed Income Portfolios

John is managing a fixed income portfolio for a mid-sized institutional investor. He has observed a recent downgrade in the credit rating of one of the portfolio's holdings, a corporate bond issued by XYZ Corp. This downgrade has led to a significant increase in the bond's yield compared to similar rated bonds. John is considering three different strategies to address this situation: selling the bond, holding the bond to maturity, or purchasing additional bonds from XYZ Corp at the new higher yield.

As John contemplates his options, he must take into account the potential recovery rate, the current credit environment, and the overall risk tolerance of the institutional investor.