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Credit spreads and the zero-coupon treasury spot curve

Papageorgiou, N and Skinner, FS (2006) Credit spreads and the zero-coupon treasury spot curve Journal of Financial Research, 29 (3). pp. 421-439.

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We examine the relation between credit spreads on industrial bonds and the underlying Treasury term structure. We use zero-coupon spot rates to eliminate the coupon bias and to allow for a consistent study both within and across the different credit ratings. Our results indicate that the level and slope of the Treasury term structure are negatively correlated with changes in the credit spread on investment-grade corporate bonds. We also find that the relation between credit spreads and the Treasury term structure is relatively stable through time. This is good news for value-at-risk calculations, as this suggests that the correlations among assets of different credit classes are stable; therefore use of historic correlations to model spread relations can be valid.

Item Type: Article
Divisions : Surrey research (other units)
Authors :
Papageorgiou, N
Date : 1 September 2006
DOI : 10.1111/j.1475-6803.2006.00187.x
Depositing User : Symplectic Elements
Date Deposited : 16 May 2017 14:45
Last Modified : 24 Jan 2020 13:14

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