The slope of the credit yield curve for speculative-grade issuers

Jean Helwege and Christopher M. Turner

No 9725, Research Paper from Federal Reserve Bank of New York

Abstract: Many theoretical bond pricing models predict that the slope of the credit yield curve facing highly leveraged firms is negative. Previous empirical research by Sarig and Warga (1989) and Fons (1994) confirms this view of high yield bonds. We show that these results largely owe to sample selection bias associated with the debt maturity choice. When the credit quality of the issuer is held constant, as in the case of matched bond samples, the typical credit yield curve facing speculative-grade issuers is upward-sloping.

Keywords: Corporate bonds; Corporations - Finance (search for similar items in EconPapers)
Date: 1997
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