Decomposing Corporate Bond Spreads

9 Pages Posted: 20 Dec 2007

Abstract

Sterling, dollar and euro-denominated corporate bond spreads narrowed substantially between late 2002 and mid-2007, but widened abruptly during the recent financial market turmoil. This article uses a structural credit risk model to examine the extent to which movements in spreads over the past decade have been driven by credit and non-credit related factors. Compensation for bearing non-credit related illiquidity risk appears to have been a particularly important driver of high-yield spreads, including during the recent financial market turmoil, but the compensation required for credit risk has also increased recently.

Suggested Citation

Webber, Lewis, Decomposing Corporate Bond Spreads. Bank of England Quarterly Bulletin, 2007, Available at SSRN: https://ssrn.com/abstract=1077563

Lewis Webber (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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