IDEAS home Printed from https://ideas.repec.org/p/bca/bocsan/17-2.html
   My bibliography  Save this paper

What Explains the Recent Increase in Canadian Corporate Bond Spreads

Author

Listed:
  • Maxime Leboeuf
  • James Pinnington

Abstract

The spread between the yield of a corporate bond and the yield of a similar Government of Canada bond reflects compensation for possible default by the issuing firm and compensation for additional risks beyond default. Using the approach proposed by Gilchrist and Zakrajšek (2012), we find that roughly two-thirds of the total 1.2-percentage-point increase in corporate bond spreads from July 2014 to September 2016—a period when oil prices were low—is due to higher compensation for possible default. Default risk explains most of the increase of spreads for energy and high-yield firms but explains almost none of the increase for financial and investment-grade firms. This suggests that liquidity risk and other factors beyond possible default affected spreads of financial and other investment-grade firms.

Suggested Citation

  • Maxime Leboeuf & James Pinnington, 2017. "What Explains the Recent Increase in Canadian Corporate Bond Spreads," Staff Analytical Notes 17-2, Bank of Canada.
    • Handle: RePEc:bca:bocsan:17-2
    as

    Download full text from publisher

    File URL: https://www.bankofcanada.ca/wp-content/uploads/2017/03/san2017-2.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rohan Arora & Chen Fan & Guillaume Ouellet Leblanc, 2019. "Liquidity Management of Canadian Corporate Bond Mutual Funds: A Machine Learning Approach," Staff Analytical Notes 2019-7, Bank of Canada.
    2. Maxime Leboeuf & Daniel Hyun, 2018. "Is the Excess Bond Premium a Leading Indicator of Canadian Economic Activity?," Staff Analytical Notes 2018-4, Bank of Canada.
    3. Nusrat Jahan, 2022. "Macroeconomic Determinants of Corporate Credit Spreads: Evidence from Canada," Carleton Economic Papers 22-07, Carleton University, Department of Economics.
    4. Guillaume Ouellet Leblanc & Maxime Leboeuf, 2019. "Bridging Canadian Business Lending and Market-Based Risk Measures," Staff Analytical Notes 2019-26, Bank of Canada.

    More about this item

    Keywords

    Financial markets;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocsan:17-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bocgvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.