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Finance and Economics Discussion Series: Treasury Yields and Corporate Bond Yield Spreads: An Empirical Analysis

by United States Federal Reserve Board , Gregory R. Duffee
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Current price ₹1,434.00
Original price ₹1,544.00
Original price ₹1,544.00
Original price ₹1,544.00
(-7%)
₹1,434.00
Current price ₹1,434.00

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Book cover type: Paperback
  • ISBN13: 9781288722303
  • Binding: Paperback
  • Subject: N/A
  • Publisher: Bibliogov
  • Publisher Imprint: Bibliogov
  • Publication Date:
  • Pages: 38
  • Original Price: USD 15.75
  • Language: English
  • Edition: N/A
  • Item Weight: 87 grams
  • BISAC Subject(s): General

This paper empirically examines the relation between the Treasury term structure and spreads of investment grade corporate bond yields over Treasuries. I find that noncallable bond yield spreads fall when the level of the Treasury term structure rises. The extent of this decline depends on the initial credit quality of the bond; the decline is small for Aaa-rated bonds and large for Baa-rated bonds. The role of the business cycle in generating this pattern is explored, as is the link between yield spreads and default risk. I also argue that yield spreads based on commonly-used bond yield indexes are contaminated in two important ways. The first is that they are refreshed'' indexes, which hold credit ratings constant over time; the second is that they usually are constructed with both callable and noncallable bonds. The impact of both of these problems is examined.

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