Credit Spreads and Correlated Default Risk

2015 ◽  
Author(s):  
Siamak Javadi ◽  
Seoyoung Kim ◽  
Tim Krehbiel ◽  
Ali Nejadmalayeri
Keyword(s):  
Default Risk ◽  
Credit Spreads

Rating Agency Adjustments to GAAP Financial Statements and Their Effect on Ratings and Credit Spreads

2014 ◽  
Vol 90 (2) ◽  
pp. 641-674 ◽  
Author(s):  
Pepa Kraft
Keyword(s):  
Default Risk ◽  
Credit Rating ◽  
Credit Ratings ◽  
Balance Sheet ◽  
Financial Statements ◽  
Financial Statement ◽  
Credit Spread ◽  
Credit Spreads ◽  
Term Structures ◽  
Interest Expense

ABSTRACT I examine a dataset of both quantitative (hard) adjustments to firms' reported U.S. GAAP financial statement numbers and qualitative (soft) adjustments to firms' credit ratings that Moody's develops and uses in its credit rating process. I first document differences between firms' reported and Moody's adjusted numbers that are both large and frequent across firms. For example, primarily because of upward adjustments to interest expense and debt attributable to firms' off-balance sheet debt, on average, adjusted coverage (cash flow-to-debt) ratios are 27 percent (8 percent) lower and adjusted leverage ratios are 70 percent higher than the corresponding U.S. GAAP ratios. I then find that Moody's hard and soft rating adjustments are associated with significantly higher credit spreads and flatter credit spread term structures. Overall, the results indicate that Moody's quantitative adjustments to financial statement numbers and qualitative adjustments to credit ratings enable it to better capture default risk, consistent with it effectively processing both hard and soft information.

scholarly journals Market conditions, default risk and credit spreads

2010 ◽  
Vol 34 (4) ◽  
pp. 743-753 ◽  
Author(s):  
Dragon Yongjun Tang ◽  
Hong Yan
Keyword(s):  
Default Risk ◽  
Credit Spreads ◽  
Market Conditions

Credit Spreads and Correlated Default Risk

2015 ◽  
Author(s):  
Siamak Javadi ◽  
Seoyoung Kim ◽  
Tim Krehbiel ◽  
Ali Nejadmalayeri
Keyword(s):  
Default Risk ◽  
Credit Spreads

Estimating the Term Structure of Interest Rates and Default Risk Embedded in Korean Corporate Bonds

2005 ◽  
Vol 13 (2) ◽  
pp. 107-132
Author(s):  
Jang Koo Kang ◽  
Sung Hwan Kim ◽  
Chul Woo Han
Keyword(s):  
Kalman Filter ◽  
Interest Rates ◽  
Term Structure ◽  
Default Risk ◽  
Factor Model ◽  
Corporate Bonds ◽  
Bond Market ◽  
Credit Spreads ◽  
Square Root ◽  
Investment Grade

This article uses a Kalman filter to fit yields of investment-grade corporate bonds to the model of instantaneous default risk, based on Duffee (1999. Review of Financial Studies. 12. PP. 197-226). The first part of this article fits the term structure of default-free interest rates to a translated two-factor square-root diffusion model. The parameters in the two-factor model are estimated by using a quasi-maxirnum-likelihood estimator in a state-space model in the Korean treasury bond market. A Kalman filter is used to estimate the unobservable factors. The two-factor model successfully incorporates random variations in the slope of the term structure and the level of interest rates‘ After estimating the default-free term structure of interest rates, the second part of this article extends the model to noncallable corporate bonds‘ This is done by assuming that the probability of default follows a translated square-root diffusion process with the possibility of being correlated with default-free interest rates. The parameters of the process are estimated for investment-grade corporate bonds including AM. AA, A. and BBB. Empirical results show that the default risk is negatively correlated with default-free interest rates and confirm that the default risk is greater for lower grades. In addition, the estimated model successfully produces the term structures of credit spreads for corporate bonds and show that the credit spreads for lower grade bonds are more steeply sloped than those for higher grade bonds. These results show that Duffee's model can reasonably account for the observed corporate bond prices in the Korean bond market.

Taxes, Default Risk, and Credit Spreads

2004 ◽  
Vol 14 (2) ◽  
pp. 71-85 ◽  
Author(s):  
Sheen Liu ◽  
Chunchi Wu
Keyword(s):  
Default Risk ◽  
Credit Spreads

scholarly journals How Sovereign Is Sovereign Credit Risk?

2011 ◽  
Vol 3 (2) ◽  
pp. 75-103 ◽  
Author(s):  
Francis A Longstaff ◽  
Jun Pan ◽  
Lasse H Pedersen ◽  
Kenneth J Singleton
Keyword(s):  
Credit Risk ◽  
Risk Premium ◽  
Default Risk ◽  
Principal Component ◽  
Credit Spread ◽  
Credit Spreads ◽  
High Yield ◽  
Sovereign Credit ◽  
The Us ◽  
Sovereign Credit Risk

We study the nature of sovereign credit risk using an extensive set of sovereign CDS data. We find that the majority of sovereign credit risk can be linked to global factors. A single principal component accounts for 64 percent of the variation in sovereign credit spreads. Furthermore, sovereign credit spreads are more related to the US stock and high-yield markets than they are to local economic measures. We decompose credit spreads into their risk premium and default risk components. On average, the risk premium represents about a third of the credit spread. (JEL F34, G15, O16, O19, P34)

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