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Determinants of Euro Term Structure of Credit Spreads

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  • Astrid Van Landschoot

    (National Bank of Belgium
    Ghent University)

Abstract

In this paper, we analyze wether the sensitivity of credit spread changes to financial and macroeconomic variables depends on bond characteristics such as rating and maturity. First, we estimate the term structure of credit spreads for different rating categories by applying an extension of the Nelson-Siegel method. Then, we analyse the determinants of credit spread changes. According to the structural models and empirical evidence on credit spreads, our results indicate that changes in the level and the slope of the default-free term structure, the market return, implied volatility, and liquidity risk significantly influence credit spread changes. The effect of these factors strongly depends on bond characteristics, especially the rating and to a lesser extent the maturity.

Suggested Citation

  • Astrid Van Landschoot, 2004. "Determinants of Euro Term Structure of Credit Spreads," Working Paper Research 57, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:200407
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    3. Almer, Thomas & Heidorn, Thomas & Schmaltz, Christian, 2008. "The dynamics of short- and long-term CDS-spreads of banks," Frankfurt School - Working Paper Series 95, Frankfurt School of Finance and Management.
    4. Jan De Wit, 2006. "Exploring the CDS-Bond Basis," Working Paper Research 104, National Bank of Belgium.
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    More about this item

    Keywords

    credit risk; structural models; Nelson-Siegel;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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