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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Finance and Economics Discussion Series: Treasury Yields and Corporate Bond Yield Spreads: An Empirical Analysis

Finance and Economics Discussion Series: Treasury Yields and Corporate Bond Yield Spreads: An Empirical Analysis

Duffee, Gregory R.
United States Federal Reserve Board

Paperback

General Political Science

ISBN10: 1288722303
ISBN13: 9781288722303
Publisher: Bibliogov
Published: Feb 6 2013
Pages: 38
Weight: 0.19
Height: 0.08 Width: 7.44 Depth: 9.69
Language: English
This paper empirically examines the relation between the Treasury term structure and spreads of investment grade corporate bond yields over Treasuries. I find that noncallable bond yield spreads fall when the level of the Treasury term structure rises. The extent of this decline depends on the initial credit quality of the bond; the decline is small for Aaa-rated bonds and large for Baa-rated bonds. The role of the business cycle in generating this pattern is explored, as is the link between yield spreads and default risk. I also argue that yield spreads based on commonly-used bond yield indexes are contaminated in two important ways. The first is that they are refreshed'' indexes, which hold credit ratings constant over time; the second is that they usually are constructed with both callable and noncallable bonds. The impact of both of these problems is examined.

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