Short-Term Corporate Bond Yield Spreads
London Business School
April 19, 2012
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, G12working papers series
Date posted: April 20, 2012
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