What credit market indicators tell us
John Duca
Economic and Financial Policy Review, 1999, issue Q III, 2-13
Abstract:
John Duca shows that interest rate spreads and loan surveys should be interpreted carefully when assessing the availability of credit and its impact on the economy. This is especially true of interest rate spread indicators, some of which reflect prepayment, liquidity, or default risk premiums that have different economic implications. It can be helpful to decompose spreads before drawing economic inferences from the structure of interest rates. Spreads between yields on non-top-grade private-sector bonds and Treasury bonds, in particular, have a large prepayment premium in addition to a time-varying default risk premium. It is also important to recognize that even some decomposed spreads include more than one type of risk premium. In this regard, a widening of some yield spreads that contain a small default risk component, such as the Aaa-Treasury spread, could reflect a rise in prepayment or liquidity risk premiums, whose magnitudes may be hard to identify separately.
Keywords: Interest rates; Credit (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)
Downloads: (external link)
https://www.dallasfed.org/~/media/documents/research/efr/1999/efr9903a.pdf Full Text (text/html)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedder:y:1999:i:qiii:p:2-13
Ordering information: This journal article can be ordered from
Access Statistics for this article
More articles in Economic and Financial Policy Review from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().