| Finance and Economics Discussion Series: Treasury Yields and Corporate Bond Yield Spreads: An Empirical Analysis Contributor(s): United States Federal Reserve Board (Created by), Duffee, Gregory R. (Author) |
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ISBN: 1288722303 ISBN-13: 9781288722303 Publisher: Bibliogov OUR PRICE: $14.96 Product Type: Paperback - Other Formats Published: February 2013 |
| Additional Information |
| BISAC Categories: - Political Science |
| Physical Information: 0.08" H x 7.44" W x 9.69" (0.19 lbs) 38 pages |
| Descriptions, Reviews, Etc. |
| Publisher Description: 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. |
