Download or read book Credit Spreads and the Term Structure of Interest Rates written by Charlotte Christiansen and published by . This book was released on 2000 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Credit Spreads on Sterling Corporate Bonds and the Term Structure of UK Interest Rates written by Jeremy Leake and published by . This book was released on 2003 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Gaussian Affine Term Structure Model of Interest Rates and Credit Spreads written by Zhiping Zhou and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate a no-arbitrage term structure model of U.S. Treasury yields and corporate bond spreads with both economic factors and latent factors as drivers of term structure dynamics. We consider two sets of economic factors: macro factors consisting of inflation and real activity, and financial market factors consisting of funding liquidity and market volatility. We show that financial market factors have limited effects on the Treasury yield curve but substantial impacts on the credit spread term structure. In particular, negative liquidity shocks widen credit spreads, and this effect is more pronounced for short-term corporate bonds. We also find that out-of-sample forecasts for credit spreads improve when financial market factors are incorporated and when no-arbitrage restrictions are imposed. We also propose a minimum-chi-square method for estimating the term structure models of interest rate and credit spreads, which is more efficient and accurate than the widespread maximum-likelihood estimation.

Download or read book Revisiting the Slope of the Credit Spread Curve written by David Lando and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The term structure of interest rates contains information about the market's expectations of the direction of future interest rates. Similarly, the term structure of credit spreads contains information about the market's perception of future credit spreads. The term structure of credit spreads is closely linked with conditional default probabilities and this link suggests a downward sloping term structure of credit spreads for high risk issuers, whose default probability conditional on survival is likely to decrease. This paper shows that for sufficiently low credit quality, as defined by the level of credit spreads, this holds true most of the time when spreads are taken from credit default swap (CDS) markets. We also discuss why CDS markets give a better way of analyzing this problem than bond price data.

Download or read book The Joint Estimation of Term Structures and Credit Spreads written by Patrick Houweling and published by . This book was released on 2007 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a new framework for the joint estimation of the default-free term structure of interest rates and corporate credit spread curves. It specifies the discount curve of a specific credit rating class as the sum of the government discount function and a discount spread function. Both functions are modelled using splines so that we can jointly estimate the default-free government term structure and corporate credit spread curves with least squares. We construct confidence intervals around the estimated term structures and credit spreads and use them to determine the number of knots and the order of the involved spline functions. By using a high-quality data set of German mark denominated bonds, we show that the new framework yields more realistic spreads than conventionally obtained spread curves that result from subtracting independently estimated government and corporate term structures. The estimated spread curves are now smooth functions of time to maturity, as opposed to the twisting curves one gets from the traditional method, and are less sensitive to model specifications. Moreover, the implied corporate term structures have tighter confidence bands. The credit spreads and term structures that result from the framework are therefore more suited to be used as input to, e.g., models that asses the credit risk in derivatives, pricing models for credit derivatives and corporate bonds, risk management procedures, and time series analyses of credit spreads.

Download or read book The Shape of the Term Structure of Credit Spreads written by Mascia Bedendo and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this empirical paper we investigate the role of interest rate, market and idiosyncratic equity variables in explaining the entire shape of the term structure of credit spreads. Recent empirical literature has highlighted the importance of these components as determinants of the credit spread levels. By analyzing portfolios of straight bonds for both the industrial and financial sectors across investment grade credit ratings, we find that these factors impact credit spread levels at various maturities in a significantly different way. Therefore we conclude that these variables represent important determinants not only of the level, but also of the slope and curvature of credit spread term structures. A closer inspection of the credit spread slope also reveals that it contains important information about future credit spreads, and provides useful insights into the theoretical predictions of the Merton (1974) model.

Download or read book Modeling the Term Structure of Interest Rates written by Rajna Gibson and published by Now Publishers Inc. This book was released on 2010 with total page 171 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.

Download or read book Forecasting the Term Structure of Government Bond Yields Using Credit Spreads and Structural Breaks written by Azamat Abdymomunov and published by . This book was released on 2015 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we investigate whether credit spread curve information helps forecast the government bond yield curve and whether the joint dynamics of the government bond yields and credit spreads have structural changes. For this purpose, we use a joint dynamic Nelson-Siegel (DNS) model of the term structures of U.S. Treasury interest rates and credit spreads. We find that this joint model produces substantially more accurate out-of-sample Treasury yields forecasts compared with a standard DNS yield curve only model. We also find that the predictive gain from incorporating the credit spread curve information substantially increases if the joint model accounts for structural changes in the dynamics of yield and credit spread curves. In addition, our model incorporates a zero lower bound restriction ensuring that our predictions are economically plausible.

Download or read book The Shape of the Term Structure of Credit Spreads written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Floating Fixed Credit Spreads written by Darrell Duffie and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the term structure of yield spreads between floating-rate and fixed-rate notes of the same credit quality and maturity. Floating-fixed spreads are theoretically characterized in some practical cases and quantified in a simple model in terms of maturity, credit quality, yield volatility, yield-spread volatility, correlation between changes in yield spreads and default-free yields, and other determining variables. We show that if the issuer's default risk is risk-neutrally independent of interest rates, the sign of floating-fixed spreads is determined by the term structure of the risk-free forward rate.

Download or read book The Term Structure of Credit Spreads and the Economic Activity written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate arbitrage-free term structure models of US Treasury yields and spreads on BBB and B-rated corporate bonds in a doubly- stochastic intensity-based framework. A novel feature of our analysis is the inclusion of macroeconomic variables - indicators of real activity, inflation and financial conditions - as well as latent factors, as drivers of term structure dynamics. Our results point to three key roles played by macro factors in the term structure of spreads: they have a significant impact on the level, and particularly the slope, of the curves; they are largely responsible for variation in the prices of systematic risk; and speculative grade spreads exhibit greater sensitivity to macro shocks than high grade spreads. In addition to estimating risk-neutral default intensities, we provide estimates of physical default intensities using data on Moody's KMV EDFs"!as a forward-looking proxy for default risk. We find that the real and financial activity indicators, along with filtered estimates of the latent factors from our term structure model, explain a large portion of the variation in EDFs"!across time. Furthermore, measures of the price of default event risk implied by estimates of physical and risk-neutral intensities indicate that compensation for default event risk is countercyclical, varies widely across the cycle, and is higher on average and more variable for higher- rated bonds.

Download or read book Estimating the Term Structure of Credit Spreads written by Antje Berndt and published by . This book was released on 2003 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Term Structure of Credit Spreads and Credit Default Swaps An Empirical Investigation written by Stefan Trück and published by . This book was released on 2014 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the term structure of credit spreads and credit default swaps for different rating categories. It is well-known quite that for issuers with lower credit quality higher spreads can be observed in the market and vice versa. However, empirical results on spreads for bonds with the same rating but different maturities are rather controversial. We provide empirical results on the term structure of credit spreads based on a large sample of Eurobonds and domestic bonds from EWU-countries. Further we investigate maturity effects on credit default swaps and compare the results to those of corporate bonds. We find that for both instruments a positive relationship between maturity and spreads could be observed for investment grade debt. For speculative grade debt the results are rather ambiguous. We also find that spreads for the same rating class and same maturity exhibit very high variation.

Download or read book Dynamic Interactions between Interest Rate Credit and Liquidity Risks written by Ren-Raw Chen and published by . This book was released on 2010 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a large data set on credit default swaps, we study how default risk interacts with interest-rate risk and liquidity risk to jointly determine the term structure of credit spreads. We classify the reference companies into two broad industry sectors, two broad credit rating classes, and two liquidity groups. We develop a class of dynamic term structure models that include (i) two benchmark interest-rate factors to capture the libor and swap rates term structure, (ii) two credit-risk factors to capture the credit swap spreads of high-liquidity group of each industry and rating class, and (iii) both an additional credit-risk factor and a liquidity-risk factor to capture the difference between the high- and low-liquidity groups. Estimation shows that companies in different industry and credit rating classes have different credit-risk dynamics. Nevertheless, in all cases, credit risks exhibit intricate dynamic interactions with the interest-rate factors. Interest-rate factors both affect credit spreads simultaneously, and impact subsequent moves in the credit-risk factors. Within each industry and credit rating class, we also find that the average credit default swap spreads for the high-liquidity group are significantly higher than for the low-liquidity group. Estimation shows that the difference is driven by both credit risk and liquidity differences. The low-liquidity group has a lower default arrival rate and also a much heavier discounting induced by the liquidity risk.

Download or read book Commonalities in the Term Structure of Credit Spreads written by Abhimanyu Chatterjee and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A New Take on the Relationship Between Interest Rates and Credit Spreads written by Brice V. Dupoyet and published by . This book was released on 2019 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: We revisit the link between interest rates and corporate bond credit spreads by applying Rigobon's (2003) heteroskedasticity identification methodology to their interconnected dynamics through a bivariate VAR system. This novel approach allows us to account for endogeneity issues and to use this framework to test the various possible explanations for the credit spread - interest rate relation that have been proposed by the literature over the years. This innovative methodology allows us to conclude that credit spreads do indeed respond negatively to interest rates, yet that this negative relation is surprisingly robust to macroeconomic shocks, interest rates characteristics, different volatility regimes, and bond ratings. We also find the magnitude of the negative relation to be larger for high-yield bonds than for investment-grade bonds. Additionally, we are also able to rule out business cycles, the optionlike feature of callable bonds proposed by Duffee (1998), as well as the term spread as the main drivers of the negative nature of the relationship.

Download or read book On Forecasting the Term Structure of Credit Spreads written by C. N. V. Krishnan and published by . This book was released on 2007 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Predictions of firm-by-firm term structures of credit spreads based on current spot and forward values can be improved upon by exploiting information contained in the shape of the credit-spread curve. However, the current credit-spread curve is not a sufficient statistic for predicting future credit spreads; the explanatory power can be increased further by exploiting information contained in the shape of the riskless-yield curve. In the presence of credit-spread and riskless factors, other macroeconomic, marketwide, and firm-specific risk variables do not significantly improve predictions of credit spreads. Current credit-spread and riskless-yield curves impound essentially all marketwide and firm-specific information necessary for predicting future credit spreads"--Federal Reserve Bank of Cleveland web site.