Finance and Economics Discussion Series: Treasury Yields and Corporate Bond Yield Spreads: An Empirical Analysis (Paperback) (ISBN-13: 9781288722303)

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.

Author: United States Federal Reserve Board, Gregory R. Duffee
ISBN-10: 1288722303
ISBN-13: 9781288722303
Publisher: Bibliogov
Language: English
Published: 02/06/2013
Pages: 38
Format: Paperback
Weight: 0.19lbs
Size: 9.69h x 7.44w x 0.08d