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Donald van Deventer
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Donald R. van Deventer founded the Kamakura Corporation in April, 1990 and is currently Chairman and Chief Executive Officer. Dr. van Deventer's emphasis at Kamakura Corporation is enterprise wide risk management and modern credit risk technology. The second edition of his newest book, Advanced... More
My company:
Kamakura Corporation
My blog:
Donald R. van Deventer's Kamakura Blog
My book:
Advanced Financial Risk Management, 2nd Edition 2013
  • U.S. Corporate Credit Spreads By Years To Maturity, August 22, 2014 0 comments
    Aug 23, 2014 6:14 PM | about stocks: BND, BOND, HYG, JNK, DHF, DHY

    (click to enlarge)sbyytm

    The graph shows the credit spread as a function of years to maturity on all corporate bond trades in the U.S. market which met the following conditions:

    Coupon: Constant fixed rate until maturity

    Maturity: 1 year or more

    Trade volume: $5 million or more

    Seniority: Senior debt

    Callability: Non-call (except for "make whole" calls)

    The credit spread is calculated by comparing the trade-weighted average yield to the matched maturity U.S. Treasury rate supplied by the U.S. Department of the Treasury to the Federal Reserve H15 statistical release. Calculations are by Kamakura Risk Information Services using data from TRACE. In a recent note, we explained why it is incorrect to use the common financial relationship that says credit spreads equal the default probability times (one minus the recovery rate). The graph above is additional evidence that this simple formula is incorrect. For more information please contact info@kamakuraco.com.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: market outlook, economy, bonds Stocks: BND, BOND, HYG, JNK, DHF, DHY
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