scholarly journals Unfunded pension liabilities and sponsoring firm credit risk: an international analysis of corporate bond spreads

2010 ◽  
Vol 16 (3) ◽  
pp. 183-200 ◽  
Author(s):  
Ronan Gallagher ◽  
Donal McKillop
Keyword(s):  
Credit Risk ◽  
Corporate Bond ◽  
Pension Liabilities ◽  
Bond Spreads

scholarly journals The Nonlinear Dynamics of Corporate Bond Spreads: Regime-Dependent Effects of their Determinants

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Henning Fischer ◽  
Oscar Stolper
Keyword(s):  
Credit Risk ◽  
Financial Distress ◽  
Liquidity Risk ◽  
Corporate Bond ◽  
Var Model ◽  
Dynamic Impact ◽  
Vector Autoregressive ◽  
High Volatility ◽  
Market Regimes ◽  
Bond Spreads

Abstract This paper studies the behavior of corporate bond spreads during different market regimes between 2004 and 2016. Applying a Markov-switching vector autoregressive (MS-VAR) model, we document that the dynamic impact of spread determinants varies substantially with market conditions. In periods of high volatility, systematic credit risk—rather than interest rate movements—contributes to driving up spreads. Moreover, while market-wide liquidity risk is not priced when volatility is low, it becomes a crucial factor during stress periods. Our results challenge the notion that spreads predominantly capture credit risk and suggest it must be reassessed during periods of financial distress.

Estimating liquidity premium of corporate bonds using the spread information in on- and off-the-run Treasury securities

2017 ◽  
Vol 7 (2) ◽  
pp. 134-162 ◽  
Author(s):  
Haitao Li ◽  
Chunchi Wu ◽  
Jian Shi
Keyword(s):  
Credit Risk ◽  
Corporate Bonds ◽  
Corporate Bond ◽  
Liquidity Premium ◽  
Yield Spreads ◽  
Content Type ◽  
Novel Approach ◽  
Liquidity Measures ◽  
Investment Grade ◽  
Bond Spreads

Purpose The purpose of this paper is to estimate the effects of liquidity on corporate bond spreads. Design/methodology/approach Using a systematic liquidity factor extracted from the yield spreads between on- and off-the-run Treasury issues as a state variable, the authors jointly estimate the default and liquidity spreads from corporate bond prices. Findings The authors find that the liquidity factor is strongly related to conventional liquidity measures such as bid-ask spread, volume, order imbalance, and depth. Empirical evidence shows that the liquidity component of corporate bond yield spreads is sizable and increases with maturity and credit risk. On average the liquidity spread accounts for about 25 percent of the spread for investment-grade bonds and one-third of the spread for speculative-grade bonds. Research limitations/implications The results show that a significant part of corporate bond spreads are due to liquidity, which implies that it is not necessary for credit risk to explain the entire corporate bond spread. Practical implications The results show that returns from investments in corporate bonds represent compensations for bearing both credit and liquidity risks. Originality/value It is a novel approach to extract a liquidity factor from on- and off-the-run Treasury issues and use it to disentangle liquidity and credit spreads for corporate bonds.

scholarly journals Option-Based Credit Spreads

2018 ◽  
Vol 108 (2) ◽  
pp. 454-488 ◽  
Author(s):  
Christopher L. Culp ◽  
Yoshio Nozawa ◽  
Pietro Veronesi
Keyword(s):  
Economic Growth ◽  
Credit Risk ◽  
Risk Premium ◽  
Bond Market ◽  
Credit Spreads ◽  
Put Options ◽  
No Arbitrage ◽  
Primary Determinant ◽  
Default Risks ◽  
Bond Spreads

We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo firm assets. Empirically, like corporate spreads, pseudo bond spreads are large, countercyclical, and predict lower economic growth. Using this framework, we find that bond market illiquidity, investors' overestimation of default risks, and corporate frictions do not seem to explain excessive observed credit spreads but, instead, a risk premium for tail and idiosyncratic asset risks is the primary determinant of corporate spreads. (JEL E23, E32, E44, G13, G24, G32)

Hedging Market and Credit Risk in Corporate Bond Portfolios

2011 ◽  
pp. 73-98 ◽  
Author(s):  
Patrizia Beraldi ◽  
Giorgio Consigli ◽  
Francesco De Simone ◽  
Gaetano Iaquinta ◽  
Antonio Violi
Keyword(s):  
Credit Risk ◽  
Corporate Bond ◽  
Bond Portfolios

scholarly journals Can Structural Models Price Default Risk? Evidence from Bond and Credit Derivative Markets

2015 ◽  
Vol 05 (03) ◽  
pp. 1550007 ◽  
Author(s):  
Jan Ericsson ◽  
Joel Reneby ◽  
Hao Wang
Keyword(s):  
Default Risk ◽  
Structural Models ◽  
Credit Default Swap ◽  
Corporate Bond ◽  
Credit Default ◽  
Credit Derivative ◽  
Risk Free Rate ◽  
Derivative Markets ◽  
Bond Spreads ◽  
Free Rate

Using a set of structural models, we evaluate the price of default protection for a sample of US corporations. In contrast to previous evidence from corporate bond data, credit default swap (CDS) premia are not systematically underestimated. In fact, one of our studied models has little difficulty on average in predicting their level. For robustness, we perform the same exercise for bond spreads by the same issuers on the same trading date. As expected, bond spreads relative to the treasury curve are systematically underestimated. This is not the case when the swap curve is used as a benchmark, suggesting that previously documented underestimation results may be sensitive to the choice of risk-free rate.

Liquidity Effects in Corporate Bond Spreads

2013 ◽  
Author(s):  
Jean Helwege ◽  
Jing-Zhi Huang ◽  
Yuan Wang
Keyword(s):  
Corporate Bond ◽  
Bond Spreads
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