IDEAS home Printed from https://ideas.repec.org/a/fip/fedfel/y2008imar14n2008-10.html
   My bibliography  Save this article

The corporate bond credit spread puzzle

Author

Listed:
  • Jens H. E. Christensen

Abstract

It 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.

Suggested Citation

  • Jens H. E. Christensen, 2008. "The corporate bond credit spread puzzle," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar14.
  • Handle: RePEc:fip:fedfel:y:2008:i:mar14:n:2008-10
    as

    Download full text from publisher

    File URL: http://www.frbsf.org/publications/economics/letter/2008/el2008-10.html
    Download Restriction: no

    File URL: http://www.frbsf.org/publications/economics/letter/2008/el2008-10.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Houweling, Patrick & Mentink, Albert & Vorst, Ton, 2005. "Comparing possible proxies of corporate bond liquidity," Journal of Banking & Finance, Elsevier, vol. 29(6), pages 1331-1358, June.
    2. Edwin J. Elton, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, February.
    3. Joost Driessen, 2005. "Is Default Event Risk Priced in Corporate Bonds?," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 165-195.
    4. 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.
    5. Pierre Collin-Dufresne, 2001. "The Determinants of Credit Spread Changes," Journal of Finance, American Finance Association, vol. 56(6), pages 2177-2207, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Krylova, Elizaveta, 2016. "Leading indicator properties of corporate bond spreads, excess bond premia and lending spreads in the euro area," Working Paper Series 1911, European Central Bank.
    2. Markus Hörmann & Andreas Schabert, 2015. "A Monetary Analysis of Balance Sheet Policies," Economic Journal, Royal Economic Society, vol. 125(589), pages 1888-1917, December.
    3. Krylova, Elizaveta, 2016. "Determinants of euro-denominated corporate bond spreads," Working Paper Series 1912, European Central Bank.

    More about this item

    Keywords

    Corporate bonds;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedfel:y:2008:i:mar14:n:2008-10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Federal Reserve Bank of San Francisco Research Library). General contact details of provider: http://edirc.repec.org/data/frbsfus.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.