Short-Term Corporate Bond Yield Spreads

Abstract:     
I study yield spreads on US corporate bonds maturing within three months. For most of the sample period 2002-2011 yield spreads on bonds issued by highly-rated companies are close to zero. During the subprime crisis however, yield spreads peak much more than comparable spreads in the commercial paper and LIBOR markets. A simple liquidity measure explains virtually all of the time series variation in yield spreads of highly-rated bonds. Since 2010 AAA-rated bonds have traded at negative spreads and low transaction costs, suggesting they trade at a specialness premium.

Number of Pages in PDF File: 35

Keywords: short-term credit spreads, corporate bonds, credit risk, liquidity risk

JEL Classification: G01, G12

working papers series