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What determines the credit spread?

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  • John Krainer

Abstract

Although the swings in economic measures during the last recession and recovery were fairly modest, swings in financial markets were quite large. Once financial markets found their footing, after steep losses in 2000-2002, prices on virtually all traded financial claims rose as the economic outlook improved. This pattern was particularly true in the corporate bond market. In this Economic Letter I describe the significant narrowing of bond spreads across different sectors and ratings classes since the last recession. I also discuss recent research on the determinants of relative pricing in the corporate bond market.

Suggested Citation

  • John Krainer, 2004. "What determines the credit spread?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec10.
    • Handle: RePEc:fip:fedfel:y:2004:i:dec10:n:2004-36
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    References listed on IDEAS

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    1. Edwin J. Elton & Martin J. Gruber & Deepak Agrawal & Christopher Mann, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, February.
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    Cited by:

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    2. Thakor, Anjan V., 2016. "The highs and the lows: A theory of credit risk assessment and pricing through the business cycle," Journal of Financial Intermediation, Elsevier, vol. 25(C), pages 1-29.

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    Keywords

    bond markets; Corporate bonds;

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