Economics, Econometrics and Finance
4 years ago

Default risk dominates corporate yield spreads, impacting bond market liquidity.

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RePEc: Research Papers in Economics
Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit-Default Swap Market, previously titled: "The Credit-Default Swap Market: Is Credit Protection Priced Correctly?"
Francis A. Longstaff, Sanjay Mithal, Eric Neis

Paper Summary

The majority of corporate yield spreads come from default risk, not liquidity. This holds true for all credit rating categories. The nondefault component of spreads changes over time and is influenced by bond-specific illiquidity and overall bond-market liquidity.

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