Article2007

THE SLOPE OF THE TERM STRUCTURE OF CREDIT SPREADS: AN EMPIRICAL INVESTIGATION

Mascia Bedendo · Lara Cathcart · Lina El‐Jahel

32 citations0/0 files storedThe Journal of Financial Research

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Credit Risk and Financial Regulations Financial Markets and Investment Strategies Financial Distress and Bankruptcy Prediction

Abstract

Abstract In this article we analyze the slope of the term structure of credit spreads. We investigate the explanatory role of interest rate, market, and idiosyncratic equity variables that the recent empirical literature highlights as important determinants of credit spread levels. This study extends the analysis and assesses its effect on credit slopes for a sample of corporate bonds. We find that these factors affect credit spreads at short and long maturities in a significantly different way. A closer inspection of the credit spread slope also reveals that it is a useful indicator of the direction of changes in future short‐term credit spreads. This evidence has important implications for the trading and risk management of portfolios of bonds with different maturities.

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References

1974ON THE PRICING OF CORPORATE DEBT: THE RISK STRUCTURE OF INTEREST RATES*1989Business conditions and expected returns on stocks and bonds 2001Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk 2001The Determinants of Credit Spread Changes 1987Cointegration and Tests of Present Value Models 1995A Simple Approach to Valuing Risky Fixed and Floating Rate Debt 1995Pricing Derivatives on Financial Securities Subject to Credit Risk 1991Common Factors Affecting Bond Returns

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