Empirical analysis of relation between credit premia and government yield term structure

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en
dc.contributor.author Pehkonen, Pauli
dc.date.accessioned 2014-12-11T09:15:01Z
dc.date.available 2014-12-11T09:15:01Z
dc.date.issued 2014
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/14612
dc.description.abstract This Master's thesis contributes to the existing literature by studying the relation between credit premia - corporate bond spreads and corporate credit default swap (CDS) premia - and government yield term structure components, which focus on the level and the slope. My sample centers on the Euro-denominated investment grade credit premia by using Markit's iBoxx corporate bond indices and iTraxx corporate CDS indices. For bond indices the time period of study is September 2002 - October 2013, and for the CDS indices the time period is April 2005 - October 2013. For the relation between credit premia and the level of government bond yield curve I find statistically and economically significant results throughout the rating and maturity spectrum. One unique feature of this study compared to prior literature is the division of the slope of the government yield curve to investigate separately its short-end and long-end to credit premia. This provides interesting results in particular due to historically low reference rate levels during the study period and the recent popularity of quantitative easing as an unconventional method of monetary policy. For the short-term slope of the government yield curve, the results indicate a significant relation for bond spreads except for AAA-rated bonds as well as a statistically less reliable relation with poor consistency for CDS premia. For the long-term slope, the relation appears significant for long-maturity corporate bond and CDS spreads. Additionally, this paper contributes to the literature by providing findings on the relative explanatory power of government yield curve components and the causality between credit premia and government yields. The level appears to have the greatest relative explanatory power on credit premia of the government yield curve components, with also the short-term slope having significant explanatory power on bond spreads. Moreover, the causality tests show that the changes in the long-term slope cause corporate bond spread changes, with the AAA-rated bond spreads indicating an opposing causality. Changes in CDS spreads appear to be caused by the short-term slope. Furthermore, this study proves that the relations between the government yield curve and credit premia have strengthened during the recent recession period. en
dc.format.extent 69
dc.language.iso en en
dc.title Empirical analysis of relation between credit premia and government yield term structure en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.contributor.department Department of Finance en
dc.subject.keyword corporate bond spread
dc.subject.keyword yritysjoukkovelkakirjan luottopreemio
dc.subject.keyword credit default swap premium
dc.subject.keyword credit default swap -preemio
dc.subject.keyword credit premium
dc.subject.keyword luottopreemio
dc.subject.keyword yield term structure level
dc.subject.keyword korkokäyrän taso
dc.subject.keyword yield term structure slope
dc.subject.keyword korkokäyrän jyrkkyys
dc.subject.keyword yield term structure convexity
dc.subject.keyword korkokäyrän konveksisuus
dc.identifier.urn URN:NBN:fi:aalto-201412113160
dc.type.dcmitype text en
dc.programme.major Finance en
dc.programme.major Rahoitus fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon joukkovelkakirjat
dc.subject.helecon bonds and debentures
dc.subject.helecon yritykset
dc.subject.helecon companies
dc.subject.helecon luotto
dc.subject.helecon credit
dc.subject.helecon korko
dc.subject.helecon interest
dc.ethesisid 13775
dc.date.dateaccepted 2014-10-09
dc.location P1 I

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