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Credit spreads on government bonds

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  • Kamhon Kan

Abstract

The paper considers the estimation of credit spreads for government bonds relative to supranational bonds. Two approaches are used for the estimation, namely, the hedonic regression method and the yield curve estimation method. The results reveal that there exists a substantial yield spread associated with Italian government bonds relative to bond yields of some supranational organizations. For bonds issued by the governments of Germany, France and the UK, the credit spreads are virtually zero relative to supranational bonds.

Suggested Citation

  • Kamhon Kan, 1998. "Credit spreads on government bonds," Applied Financial Economics, Taylor & Francis Journals, vol. 8(3), pages 301-313.
    • Handle: RePEc:taf:apfiec:v:8:y:1998:i:3:p:301-313
    DOI: 10.1080/096031098333050
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    References listed on IDEAS

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    1. Favero, Carlo A & Giavazzi, Francesco & Spaventa, Luigi, 1997. "High Yields: The Spread on German Interest Rates," Economic Journal, Royal Economic Society, vol. 107(443), pages 956-985, July.
    2. Mr. Carlo Cottarelli & Mr. Mauro Mecagni, 1990. "The Risk Premiumon Italian Government Debt, 1976-1988," IMF Working Papers 1990/038, International Monetary Fund.
    3. Lars E.O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994," NBER Working Papers 4871, National Bureau of Economic Research, Inc.
    4. Svensson, Lars E O, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992-4," CEPR Discussion Papers 1051, C.E.P.R. Discussion Papers.
    5. Carlo Cottarelli & Mauro Mecagni, 1990. "The Risk Premium on Italian Government Debt, 1976-88," IMF Staff Papers, Palgrave Macmillan, vol. 37(4), pages 865-880, December.
    6. repec:bla:jfinan:v:44:y:1989:i:5:p:1351-60 is not listed on IDEAS
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    1. Eijffinger, S.C.W. & Kobielarz, M.L. & Uras, R.B., 2015. "Sovereign Debt, Bail-Outs and Contagion in a Monetary Union," Discussion Paper 2015-018, Tilburg University, Center for Economic Research.
    2. Ballestra, Luca Vincenzo & Pacelli, Graziella, 2014. "Valuing risky debt: A new model combining structural information with the reduced-form approach," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 261-271.
    3. Laurence Copeland & Sally-Anne Jones, 2001. "Default probabilities of European sovereign debt: market-based estimates," Applied Economics Letters, Taylor & Francis Journals, vol. 8(5), pages 321-324.
    4. Manzoni, Katiuscia, 2002. "Modeling credit spreads: An application to the sterling Eurobond market," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 183-218.
    5. Francisco Rivadeneyra, 2012. "The U.S.-Dollar Supranational Zero-Coupon Curve," Discussion Papers 12-5, Bank of Canada.
    6. Su-Lien Lu & Chau-Jung Kuo, 2005. "How to gauge the credit risk of guarantee issues in a Taiwanese bills finance company: an empirical investigation using a market-based approach," Applied Financial Economics, Taylor & Francis Journals, vol. 15(16), pages 1153-1164.

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