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

Mascia Bedendo, Lara Cathcart and Lina El‐Jahel

Journal of Financial Research, 2007, vol. 30, issue 2, 237-257

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.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:30:y:2007:i:2:p:237-257

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