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Global financial crisis and US interest rate swap spreads

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  • Takayasu Ito

Abstract

This article investigates the determinants of US interest rate swap spreads in the period including the financial crisis. The asymmetric impacts of the financial crisis on interest rate swap spreads are focused by dividing the whole sample period into two. Four determinants of swap spreads - default risk, the slope of yield curve, T-bill and EuroDollar (TED) spread and volatility - are chosen. The default risk measured both in Aaa and Baa corporate bonds are negatively incorporated in the period of financial crisis. The slope is positively incorporated in short- and long-term maturities in the period of financial crisis. The liquidity premium is positively incorporated in short- and long-term maturities in normal period and only in short-term maturity in the period of financial crisis. The market participants were uncertain as for the future of monetary policy by Federal Reserve Board (FRB). Thus the speculation on the path of monetary policy is considered to cause more volatility in the market. The volatility can be a positive determinant of US swap spreads in the period of financial crisis.

Suggested Citation

  • Takayasu Ito, 2010. "Global financial crisis and US interest rate swap spreads," Applied Financial Economics, Taylor & Francis Journals, vol. 20(1-2), pages 37-43.
  • Handle: RePEc:taf:apfiec:v:20:y:2010:i:1-2:p:37-43
    DOI: 10.1080/09603100903262921
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    References listed on IDEAS

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    Cited by:

    1. Piotr Płuciennik, 2012. "The Impact of the World Financial Crisis on the Polish Interbank Market: A Swap Spread Approach," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 4(4), pages 269-288, December.
    2. Vivek Bhargava & D.K. Malhotra, 2012. "The effects of volatility spillover in the US basis swap markets," International Journal of Financial Services Management, Inderscience Enterprises Ltd, vol. 5(3), pages 216-238.
    3. Toyoshima, Yuki & Tamakoshi, Go & Hamori, Shigeyuki, 2012. "Asymmetric dynamics in correlations of treasury and swap markets: Evidence from the US market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 381-394.
    4. Sohel Azad, A.S.M. & Batten, Jonathan A. & Fang, Victor & Wickramanayake, Jayasinghe, 2015. "International swap market contagion and volatility," Economic Modelling, Elsevier, vol. 47(C), pages 355-371.

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