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Default Risk, Yield Spreads, and Time to Maturity

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  • Rodriguez, Ricardo J.

Abstract

This paper extends the default model of yield spreads for bonds by showing that, in general, they are a complex function of maturity and, in particular, are not always monotonically increasing, contrary to what one traditional view suggests. Our results may help explain the apparently conflicting empirical results found in the literature.

Suggested Citation

  • Rodriguez, Ricardo J., 1988. "Default Risk, Yield Spreads, and Time to Maturity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(1), pages 111-117, March.
    • Handle: RePEc:cup:jfinqa:v:23:y:1988:i:01:p:111-117_01
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    Cited by:

    1. Hull, John & White, Alan, 1995. "The impact of default risk on the prices of options and other derivative securities," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 299-322, May.
    2. Aly Zaher, Noha & Mohamed, Ehab K.A. & Basuony, Mohamed A.K., 2020. "The effect of timely loss recognition and accrual quality on corporate bond spread: The influence of legal and financial institutions," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    3. Brown, Alessio J. G. & Žarnić, Žiga, 2003. "Explaining the increased German credit spread: The role of supply factors," Kiel Advanced Studies Working Papers 412, Kiel Institute for the World Economy (IfW Kiel).
    4. Chunchi Wu, 1991. "A Certainty Equivalent Approach To Municipal Bond Default Risk Estimation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 14(3), pages 241-247, September.
    5. Wu, Chunchi & Yu, Chih-Hsien, 1996. "Risk aversion and the yield of corporate debt," Journal of Banking & Finance, Elsevier, vol. 20(2), pages 267-281, March.
    6. Aytekin Ertan & Maria Loumioti & Regina Wittenberg‐Moerman, 2017. "Enhancing Loan Quality Through Transparency: Evidence from the European Central Bank Loan Level Reporting Initiative," Journal of Accounting Research, Wiley Blackwell, vol. 55(4), pages 877-918, September.
    7. Fooladi, Iraj J. & Roberts, Gordon S. & Skinner, Frank, 1997. "Duration for bonds with default risk," Journal of Banking & Finance, Elsevier, vol. 21(1), pages 1-16, January.

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