The corporate bond credit spread puzzle
AbstractIt is common to view interest on a corporate bond as reflecting the risk-free, longer-term interest rate, such as that on a 10-year Treasury bond, plus a spread related to the credit risk of the corporation issuing the bond. However, empirical analysis of the determinants of corporate bond rates has turned out to be more demanding than it appears on the surface. This has led researchers to talk about a credit spread puzzle. In this Economic Letter we will first detail the evidence for the existence of such a credit spread puzzle. In a second step we will take a closer look at some of the pieces that go into explaining the puzzle.
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.
Bibliographic InfoArticle provided by Federal Reserve Bank of San Francisco in its journal FRBSF Economic Letter.
Volume (Year): (2008)
Issue (Month): mar14 ()
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.:
- Joost Driessen, 2005. "Is Default Event Risk Priced in Corporate Bonds?," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 18(1), pages 165-195.
- Houweling, Patrick & Mentink, Albert & Vorst, Ton, 2005.
"Comparing possible proxies of corporate bond liquidity,"
Journal of Banking & Finance, Elsevier,
Elsevier, vol. 29(6), pages 1331-1358, June.
- Houweling, P. & Mentink, A.A. & Vorst, A.C.F., 2003. "Comparing possible proxies of corporate bond liquidity," Econometric Institute Research Papers EI 2003-49, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Gregory R. Duffee, 1998. "The Relation Between Treasury Yields and Corporate Bond Yield Spreads," Journal of Finance, American Finance Association, American Finance Association, vol. 53(6), pages 2225-2241, December.
- Edwin J. Elton, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, American Finance Association, vol. 56(1), pages 247-277, 02.
- Pierre Collin-Dufresne, 2001. "The Determinants of Credit Spread Changes," Journal of Finance, American Finance Association, American Finance Association, vol. 56(6), pages 2177-2207, December.
- Markus Hoermann & Andreas Schabert, 2013. "A Monetary Analysis of Balance Sheet Policies," Working Paper Series in Economics, University of Cologne, Department of Economics 68, University of Cologne, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger).
If references are entirely missing, you can add them using this form.