The Default Risk of High-Yield Bonds PDF Download
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Author: Cynthia G. McDonald
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper investigates the default behavior of original issue rated non-convertible high-yield bonds. Previous studies of high-yield bond defaults provide evidence of an aging effect: the longer bonds have been outstanding, the greater the default probability. However, Blume, Keim and Patel (1991) assert that this aging relationship reflects changing economic conditions. This study of bond defaults discriminates between the aging effect and the impact of macroeconomic changes. A hazard model is used to simultaneously estimate the impact of bond age, firm-specific and issue-specific characteristics, and changing economic conditions. The specification models the impact of time since issuance semi-parametrically, corrects for unobserved heterogeneity and allows for the possibility that outstanding bonds may default in the future. Our findings, based on a sample of 579 individual high-yield bonds issued between 1977 and 1989, suggest that, after controlling for annual changes in economic conditions, default rates increase with age. Bond characteristics at the time of issuance also impact the default behavior: BB rated bonds tend to have significantly lower default rates compared to CCC rated bonds; bonds with higher coupon rates have significantly higher default rates. In addition, high-yield bonds issued prior to 1980 experienced significantly lower default rates.
Author: Cynthia G. McDonald
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper investigates the default behavior of original issue rated non-convertible high-yield bonds. Previous studies of high-yield bond defaults provide evidence of an aging effect: the longer bonds have been outstanding, the greater the default probability. However, Blume, Keim and Patel (1991) assert that this aging relationship reflects changing economic conditions. This study of bond defaults discriminates between the aging effect and the impact of macroeconomic changes. A hazard model is used to simultaneously estimate the impact of bond age, firm-specific and issue-specific characteristics, and changing economic conditions. The specification models the impact of time since issuance semi-parametrically, corrects for unobserved heterogeneity and allows for the possibility that outstanding bonds may default in the future. Our findings, based on a sample of 579 individual high-yield bonds issued between 1977 and 1989, suggest that, after controlling for annual changes in economic conditions, default rates increase with age. Bond characteristics at the time of issuance also impact the default behavior: BB rated bonds tend to have significantly lower default rates compared to CCC rated bonds; bonds with higher coupon rates have significantly higher default rates. In addition, high-yield bonds issued prior to 1980 experienced significantly lower default rates.
Author: Mark Shenkman
Publisher: McGraw Hill Professional
ISBN: 9780071376969
Category : Business & Economics
Languages : en
Pages : 614
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Book Description
HIGH-YIELD BONDS provides state-of-the-art research, strategies, and toolsÑalongside the expert analysis of respected authorities including Edward Altman of New York UniversityÕs Salomon Center, Lea Carty of MoodyÕs Investor Service, Sam DeRosa-Farag of Donaldson, Lufkin & Jenrette, Martin Fridson of Merrill Lynch & Company, Stuart Gilson of Harvard University, Robert Kricheff of CS First Boston, and Frank Reilly of the University of Notre DameÑto help you truly understand todayÕs high-yield market. For added value and ease of reference, this high-level one-volume encyclopedia is divided into seven sections detailing virtually every aspect of high-yield bond investment. They include: Market structureÑThe role of investment banks in security innovation and market development, evolution of analytical methodologies, and recent leveraged loan market developments; Security risk analysisÑHistorical bond default rates, real interest rate and default rate relationships, and new simulation methodologies for modeling credit quality; Security valuationÑImpact of seniority and security on bond pricing and return, important trading factors, and a Monte Carlo simulation methodology for valuing bonds and options in the context of correlated interest rate and credit risk; Market valuation modelsÑEconometric studies which detail the importance of monetary influences, risk-free interest rates, default rates, mutual fund flows, and seasonal fluctuations; Portfolio managementÑHistorical perspective and comparison to alternative investments, analysis of indices available to investors, and specific portfolio selection and risk management strategies of professional fund managers; Distressed security investingÑHistorical risk and return information, plus an academic overview of the market and decision criteria for uncovering and investing in securities with higher-than-average risk-adjusted returns; Corporate finance considerationsÑEmerging firmsÕ strategic choice between external debt and equity financing, as well as the choice of issuing public versus private (Rule-144a) securities. HIGH-YIELD BONDS provides extensive coverage of bond valuation and the construction and management of high-yield portfolios. Advanced Monte Carlo simulation models for the valuation of bonds and options on bonds as well as risk assessments on portfolios of bonds under conditions of correlated interest rate and credit risk are demonstrated. In todayÕs explosive environment of multiple new issues and high risk versus return relationships, it is paramount that you get advice from analysts and experts who have been influential in shaping and defining the market. HIGH-YIELD BONDS will provide you with a valuable reference to this fascinating and constantly changing class of securities, helping you assemble a stable, diversified portfolio of fixed income investments that provides the greatest returns and the lowest risks.
Author: Edward I. Altman
Publisher: Beard Books
ISBN: 9781587981555
Category : Business & Economics
Languages : en
Pages : 278
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Book Description
Details the rise and operation of the high yield debt market as illustrated by the "junk" bond.
Author: United States. General Accounting Office
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 334
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Book Description
Author: William F. Sharpe
Publisher: Cfa
ISBN:
Category : Business & Economics
Languages : en
Pages : 104
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Book Description
Author:
Publisher:
ISBN:
Category : Financial institutions
Languages : en
Pages : 56
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Book Description
Author: Edward I. Altman
Publisher: Beard Books
ISBN: 9781893122017
Category : Business & Economics
Languages : en
Pages : 324
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Book Description
Author: Frank K. Reilly
Publisher:
ISBN:
Category : Bonds
Languages : en
Pages : 96
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Book Description
Author: Cynthia G. MacDonald
Publisher:
ISBN:
Category :
Languages : en
Pages : 62
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Book Description
Author: Nicola Gennaioli
Publisher: International Monetary Fund
ISBN: 1498391990
Category : Business & Economics
Languages : en
Pages : 53
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Book Description
We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks increase their exposure to public bonds, especially large banks and when expected bond returns are high. At the bank level, bondholdings correlate negatively with subsequent lending during sovereign defaults. This correlation is mostly due to bonds acquired in pre-default years. These findings shed light on alternative theories of the sovereign default-banking crisis nexus.
