Credit spreads and the term structure of interest rates
AbstractThis paper analyzes the impact of macroeconomic announcements on the correlation between credit spreads and the term structure of interest rates. We propose to employ an extented version of the Constant Conditional Correlations framework of Bollerslev (1990) to describe the evolution of the first difference of the slope of the term structure. Our main empirical findings can be summarized as follow: (a) The credit spread and the level of the term structure are uncorrelated on macroeconomic announcement days. (b) The credit spread and the level of the term structure are negatively correlated. (c) The credit spread and the slope of the term structure are negatively correlated. (d) The process for the conditional variance of the credit spread is highly persistent. (e) The conditional variance of the credit spread is smaller on macroeconomic announcement days than on other days. The results, (a) in particular, provide important new information about how corporate bond asset pricing models should be specified.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Review of Financial Analysis.
Volume (Year): 11 (2002)
Issue (Month): 3 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620166
Other versions of this item:
- Christiansen, Charlotte, 2000. "Credit Spreads and the Term Structure of Interest Rates," Finance Working Papers 00-14, University of Aarhus, Aarhus School of Business, Department of Business Studies.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael J. Fleming & Eli M. Remolona, 1997.
"What moves the bond market?,"
9706, Federal Reserve Bank of New York.
- Jarrow, Robert A & Lando, David & Turnbull, Stuart M, 1997. "A Markov Model for the Term Structure of Credit Risk Spreads," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 481-523.
- Gregory R. Duffee, 1998. "The Relation Between Treasury Yields and Corporate Bond Yield Spreads," Journal of Finance, American Finance Association, vol. 53(6), pages 2225-2241, December.
- Pierre Collin-Dufresne & Robert S. Goldstein & Spencer J. Martin, 1999. "The Determinants of Credit Spreads Changes," GSIA Working Papers 2000-E13, Carnegie Mellon University, Tepper School of Business.
- Wilson, Jack W & Jones, Charles P, 1990. "Is There a January Effect in Corporate Bond and Paper Returns?," The Financial Review, Eastern Finance Association, vol. 25(1), pages 55-79, February.
- Jones, Charles M. & Lamont, Owen & Lumsdaine, Robin L., 1998.
"Macroeconomic news and bond market volatility,"
Journal of Financial Economics,
Elsevier, vol. 47(3), pages 315-337, March.
- Charles M. Jones & Owen Lamont & Robin Lumsdaine, 1996. "Macroeconomic News and Bond Market Volatility," Home Pages _005, Princeton University, Department of Economics.
- Charles M. Jones & Owen Lamont & Robin L. Lumsdaine, . "Macroeconomic News and Bond Market Volatility," CRSP working papers 333, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Nunn, Kenneth P. & Hill, Joanne & Schneeweis, Thomas, 1986. "Corporate Bond Price Data Sources and Return/Risk Measurement," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(02), pages 197-208, June.
- Sarig, Oded & Warga, Arthur, 1989. " Some Empirical Estimates of the Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 44(5), pages 1351-60, December.
- Nelson, Daniel B., 1990. "ARCH models as diffusion approximations," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 7-38.
- Christie-David, Rohan & Chaudhry, Mukesh, 1999. "Liquidity and Maturity Effects around News Releases," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 22(1), pages 47-67, Spring.
- Engle, Robert F, 1998. "Macroeconomic Announcements and Volatility of Treasury Futures," University of California at San Diego, Economics Working Paper Series qt7rd4g3bk, Department of Economics, UC San Diego.
- Ederington, Louis H & Lee, Jae Ha, 1993. " How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-91, September.
- Madan, Dilip & Unal, Haluk, 2000. "A Two-Factor Hazard Rate Model for Pricing Risky Debt and the Term Structure of Credit Spreads," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(01), pages 43-65, March.
- Longstaff, Francis A & Schwartz, Eduardo S, 1995. " A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
- Duffee, Gregory R, 1999.
"Estimating the Price of Default Risk,"
Review of Financial Studies,
Society for Financial Studies, vol. 12(1), pages 197-226.
- Edwin J. Elton, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, 02.
- Kroner, Kenneth F & Ng, Victor K, 1998. "Modeling Asymmetric Comovements of Asset Returns," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 817-44.
- Chang, Eric C. & Huang, Roger D., 1990. "Time-Varying Return and Risk in the Corporate Bond Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(03), pages 323-340, September.
- Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
- Alizadeh, Amir H. & Gabrielsen, Alexandros, 2013. "Dynamics of credit spread moments of European corporate bond indexes," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3125-3144.
- Batten, Jonathan & Hogan, Warren, 2002. "A perspective on credit derivatives," International Review of Financial Analysis, Elsevier, vol. 11(3), pages 251-278.
- Jonathan Batten & Warren Hogan & Gady Jacoby, 2005. "Measuring credit spreads: evidence from Australian Eurobonds," Applied Financial Economics, Taylor & Francis Journals, vol. 15(9), pages 651-666.
- Blakespoor, Elizabeth & Linsmeier, Thomas J. & Petroni, Kathy & Shakespeare, Catherine, 2012. "Fair Value Accounting for Financial Instruments: Does It Improve the Association between Bank Leverage and Credit Risk?," Research Papers 2107, Stanford University, Graduate School of Business.
- Chee Jin Yap & Gerard Gannon, 2007. "Factors Affecting the Credit Spreads Behaviour of USD Malaysian Bonds," Accounting, Finance, Financial Planning and Insurance Series 2007_10, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.