Macro Factors in Corporate Bond Credit and Liquidity Spreads PDF Download
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Author: Biao Guo
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Book Description
This paper studies the macroeconomic determinants of the term structures of Treasury yields, corporate bond credit spreads, and corporate bond liquidity spreads in a unified no-arbitrage framework. Four economic factors, monetary conditions, inflation, real output, and financial market volatility, are extracted from a set of macroeconomic and financial data series. During the pre-crisis period, volatility shocks decrease Treasury yields and widen both credit spreads and liquidity spreads for all rating classes, and credit spreads widen as monetary conditions tighten, but the effects of inflation and real output are insignificant. In times of stress, financial market volatility has a similar impact and the impacts of inflation and real output become significant as well. Ignoring the liquidity component of corporate yield spreads is shown to lead to inaccurate estimation of the impacts of economic factors on corporate credit spreads. The paper also provides evidence of ”flight-to-liquidity” behavior which strengthens in bad times and sheds light on the negative correlation between the risk-free rate and corporate yield spreads as well as on the positive correlation between credit spreads and liquidity spreads.
Author: Biao Guo
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Book Description
This paper studies the macroeconomic determinants of the term structures of Treasury yields, corporate bond credit spreads, and corporate bond liquidity spreads in a unified no-arbitrage framework. Four economic factors, monetary conditions, inflation, real output, and financial market volatility, are extracted from a set of macroeconomic and financial data series. During the pre-crisis period, volatility shocks decrease Treasury yields and widen both credit spreads and liquidity spreads for all rating classes, and credit spreads widen as monetary conditions tighten, but the effects of inflation and real output are insignificant. In times of stress, financial market volatility has a similar impact and the impacts of inflation and real output become significant as well. Ignoring the liquidity component of corporate yield spreads is shown to lead to inaccurate estimation of the impacts of economic factors on corporate credit spreads. The paper also provides evidence of ”flight-to-liquidity” behavior which strengthens in bad times and sheds light on the negative correlation between the risk-free rate and corporate yield spreads as well as on the positive correlation between credit spreads and liquidity spreads.
Author: Arne Wilkes
Publisher: Peter Lang Gmbh, Internationaler Verlag Der Wissenschaften
ISBN: 9783631606049
Category : Bond market
Languages : en
Pages : 0
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Book Description
Credit spreads express how markets evaluate the riskiness of corporate bonds compared to risk-free investments. Since credit spreads have been highly volatile especially during the last decade it is important for academics and practitioners alike to understand the dynamic interdependencies between credit spreads and their determinants. Based on a sample of European corporate bonds and different macroeconomic variables the author analyzes the determinants of credit spreads during the period of 1999 to 2009. With a macro-finance term structure model he shows that the European corporate bond market is largely integrated with some remaining segmentation. Furthermore, panel regressions yield that declining liquidity leads to a significant widening of credit spreads especially during the recent financial crisis. Finally, he demonstrates based on a cointegration analysis that a long-term relationship exists between credit spreads and their determinants and that credit spreads were significantly overpriced after the collapse of Lehman Brothers but have almost returned to equilibrium towards the end of 2009.
Author: Michelle O'Toole
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Author: Hsien-Hsing Liao
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
The recent global financial crisis reveals the important role of internal liquidity risk in corporate credit risk. However, hardly have any existing studies investigated its effects on bond yield spreads. This study employs both bond- and market-level data to address the issue. Bond-level results show that corporate internal liquidity volatility significantly impacts bond yield spreads when controlling for well-known variables, traditional accounting measures of corporate debt servicing ability and an additional structural form credit risk measure (the cash flow volatility). Further, this study finds that a systematic internal liquidity risk factor can materially capture market-wide bond yield spread changes. Market-level results also show that market-level internal liquidity risk significantly explains the spreads of bond indexes when controlling for factors of bond and equity markets and other major macro state variables. We conclude that internal liquidity risk should be incorporated into bond yield spread modeling.
Author: Jean Helwege
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
Corporate bond spreads are affected by both credit risk and liquidity and it is difficult to disentangle the two factors empirically. In this paper we separate out the credit risk component by examining bonds that are issued by the same firm and that trade on the same day. Our sample of bond pairs provides two yield spreads which, if they differ, vary only because of differences in liquidity. We then investigate the determinants of the differences in yield spreads. We find that standard liquidity measures do a poor job of explaining spreads, and that incorporating the information from other bonds issued by the firm and from bonds of other firms can significantly improve the explanatory power of those liquidity measures. Still, a significant portion of the spread is left unexplained and it is largely driven by a common unknown factor. We conclude that good proxies for the liquidity component of corporate bond spreads remain elusive.
Author:
Publisher:
ISBN: 9789289933193
Category :
Languages : en
Pages : 30
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Book Description
We assess the contribution of economic and financial factors in the determination of euro area corporate bond spreads over the period 2001-2015. The proposed multi-market, no-arbitrage affine term structure model is basde on the methodology proposed by Dewachter, Iana, Lyrio and Perea (2015). We model jointly the risk-free curve, measured by overnight index swap (OIS) rates, and the corporate yield cuves for two rating classes (A and BBB). The model includes four spanned and six unspanned factors. We find that, in general, both economic (real activity and ination) and financial factors. We find that, in general, both economic (real activity and ination) and financial factors (proxying risk aversion, fight to liquidity and general financial markets stress) play a significant role in the determination of the spanned factors and hence in the dynamics of the risk-free yield curve and corporate bond spreads. Across the risk-free OIS curve, macroeconomic and financial factors are each responsible on average for explaining 30 and 65 percent of yield variation, respectively. For A-and BBB- rated corporate debt, the selected financial variables explainon average 50 percent of the variation in corporate spreads during the las decade.
Author: Zhiping Zhou
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
We estimate a no-arbitrage term structure model of U.S. Treasury yields and corporate bond spreads with both economic factors and latent factors as drivers of term structure dynamics. We consider two sets of economic factors: macro factors consisting of inflation and real activity, and financial market factors consisting of funding liquidity and market volatility. We show that financial market factors have limited effects on the Treasury yield curve but substantial impacts on the credit spread term structure. In particular, negative liquidity shocks widen credit spreads, and this effect is more pronounced for short-term corporate bonds. We also find that out-of-sample forecasts for credit spreads improve when financial market factors are incorporated and when no-arbitrage restrictions are imposed. We also propose a minimum-chi-square method for estimating the term structure models of interest rate and credit spreads, which is more efficient and accurate than the widespread maximum-likelihood estimation.
Author: Hui Chen
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 0
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Book Description
We develop a structural credit risk model to examine how the interactions of liquidity and default risk affect corporate bond pricing. By explicitly modeling debt rollover and by endogenizing the holding costs via collateralized financing, our model generates rich links between liquidity risk and default risk. The introduction of macroeconomic risks helps the model capture realistic time variation in default risk premia and the default-liquidity spiral over the business cycle. Across different credit ratings, our calibrated model can simultaneously match the average default probabilities, credit spreads, and bond liquidity measures including Bond-CDS spreads and bid-ask spreads in the data. Through a structural decomposition, we show that the interactions between liquidity and default risk account for 25∼40% of the observed credit spreads and up to 55% of the credit spread changes over the business cycle. As an application, we use this framework to quantitatively evaluate the effects of liquidity-provision policies for the corporate bond market.
Author: Estelle P. Roche
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Author: 蔡佩伶
Publisher:
ISBN:
Category :
Languages : en
Pages : 102
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Book Description
