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Determinants of euro term structure of credit spreads

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  • Van Landschoot, Astrid

Abstract

In this paper, we investigate the determinants of the Euro term structure of credit spreads. More specifically, we analyze whether the sensitivity of credit spread changes to financial and macroeconomic variables depends on bond characteristics such as rating and maturity. According to the structural models and empirical evidence on credit spreads, we find 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. Bonds with lower ratings are more affected by financial and macroeconomic news. Furthermore, we find that liquidity risk significantly increases credit spreads, especially on lower rated bonds. JEL Classification: C22, E4, G15

Suggested Citation

  • Van Landschoot, Astrid, 2004. "Determinants of euro term structure of credit spreads," Working Paper Series 397, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2004397
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    Cited by:

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    2. 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.
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    More about this item

    Keywords

    credit risk; Nelson-Siegel; Structural models;
    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
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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