Credit Risk Management in Corporate Bond Portfolios

As a portfolio manager for a high-net-worth individual, you have been asked to assess and manage the credit risk associated with an investment in a corporate bond portfolio. The client has expressed concerns about potential defaults and the overall credit quality of the bonds held in the portfolio.

Your task is to outline a comprehensive credit risk management framework. Discuss specific strategies you would implement to evaluate and mitigate credit risk, including, but not limited to, qualitative and quantitative assessment methods, diversification of credit holdings, ongoing monitoring, and the use of credit derivatives.

Furthermore, provide a rationale for your chosen strategies and how they align with the client’s investment objective of capital preservation while achieving moderate returns.