It’s well known that bonds trading at very high spreads empirically “lose their rate sensitivity” (compared to the standard model) - they act more equity-like empirically and of course if they are distressed enough start trading near the market view on recovery. I was thinking that pricing a bond using a CDS-model-type approach would automatically produce much lower rate sensitivity when spreads are high, and would also produce prices tending to the recovery value. But it seems nobody models HY bonds this way.
Why is that? Because the recovery is “too unknown”? If you have a portfolio with bonds and CDS in it and you use two models with very differing assumptions, why would you expect to get the right rate risk?