Sovereign Bond Spreads and Credit Sensitivity

CEMA Working Paper Series

12 Pages Posted: 5 May 2021 Last revised: 27 May 2021

Date Written: October 20, 2020

Abstract

Expectations of risky bond payments are unobservable and recovery rates for sovereigns are hard to estimate because they have no contractual claims to defined assets and samples of defaults are limited. A geometric version of credit spread is used to derive expected payments, dependent on idiosyncratic risk and unrelated to interest rates. The expectations are used to define a measure of price sensitivity to credit risk perceptions, or credit duration, improving the ambiguity of modified yield duration.

Keywords: bond, sovereign, spread, expected, risk neutral, default, duration, yield

JEL Classification: D84, F34, G12, H63

Suggested Citation

Schefer, Ricardo, Sovereign Bond Spreads and Credit Sensitivity (October 20, 2020). CEMA Working Paper Series , Available at SSRN: https://ssrn.com/abstract=3838104 or http://dx.doi.org/10.2139/ssrn.3838104

Ricardo Schefer (Contact Author)

Universidad del CEMA ( email )

Av Cordoba 374
Buenos Aires, C1054AAP
Argentina
+54 11 6314 3000 (Phone)
+54 11 4314 1654 (Fax)

HOME PAGE: http://www.cema.edu.ar/u/ras

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