A measure of Turkey's sovereign and banking sector credit risk: Asset swap spreads

Doruk Kucuksarac, Abdullah Kazdal, Halil Ibrahim Korkmaz and Yigit Onay

Central Bank Review, 2021, vol. 21, issue 2, 49-57

Abstract: The existence of the credit derivatives written on the eurobonds such as credit default swaps or asset swaps allows policymakers and investors to monitor the evolvement of credit risk. However, these instruments are mostly available in advanced economies, whereas the market for credit derivatives in emerging market countries, including Turkey, is limited in terms of liquidity and maturity. In this regard, this study aims to construct a proxy for the credit risk of the Turkish Treasury and banking sector in international markets by calculating asset swap spread for US dollar-denominated fixed coupon eurobonds, which requires a robust estimation of the relevant yield curves. The study firstly presents the estimation of the sovereign and banking sector yield curves and then constructs a synthetic asset swap structure to obtain embedded credit risk premia in the eurobond curves. Our findings show that the proposed credit risk indicator is vastly correlated with credit default swap premium. In addition to this, estimated eurobond curves are also useful for monitoring borrowing cost dynamics of the Turkish Treasury and banking sector in international markets.

Keywords: Credit risk; Asset swap spread; Yield curve (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.sciencedirect.com/science/article/pii/S1303070121000135 (application/pdf)

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:tcb:cebare:v:21:y:2021:i:2:p:49-57

Access Statistics for this article

More articles in Central Bank Review from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC.
Bibliographic data for series maintained by () and () and () and ().