The term structure of credit spreads and credit default swaps-an empirical investigation

Stefan Trück, Matthias Laub, Svetlozar T. Rachev

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

We investigate the term structure of credit spreads and credit default swaps for different rating categories. It is quite well-known that for issuers with lower credit quality higher spreads can be observed in the market and vice versa. However, empirical results on spreads for bonds with the same rating but different maturities are rather controversial. We provide empirical results on the term structure of credit spreads based on a large sample of Eurobonds and domestic bonds from EWU countries. Further we investigate maturity effects on credit default swaps and compare the results to those of corporate bonds. We find out that for both instruments a positive relationship between maturity and spreads could be observed for investment grade debt. For speculative grade debt the results are rather ambiguous. We also find that spreads for the same rating class and same maturity exhibit very high variation.

Original languageEnglish
Pages (from-to)8-30
Number of pages23
JournalInvestment Management and Financial Innovations
Volume1
Issue number3
StatePublished - 2004

Keywords

  • Credit default swaps
  • Credit spreads
  • Maturity effects
  • Reduced form models

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