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Aggregate Risk in the Term Structure of Corporate Credit

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  • Johannes Poeschl
  • Ram Yamarthy

Abstract

Higher rates of default can occur when corporations have difficulty accessing short- and long- term credit markets, increasing risks to financial stability. This paper uses credit spread data across different maturities to study what the shape and risk sensitivity of a firm's term structure can tell us about its fragility. Firms that are more financially constrained display a negatively sloped credit spread curve, have short-term spreads that are more sensitive to aggregate conditions, and face heightened rollover risks. Such financing fragility at the short end of the curve can harm a firm's ability to take advantage of investment opportunities (Working Paper no. 22-02).

Suggested Citation

  • Johannes Poeschl & Ram Yamarthy, 2022. "Aggregate Risk in the Term Structure of Corporate Credit," Working Papers 22-02, Office of Financial Research, US Department of the Treasury.
    • Handle: RePEc:ofr:wpaper:22-02
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    References listed on IDEAS

    as
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