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An Empirical Investigation of New Bond Issue Yield Spreads, Default Risk and Split Ratings


Michael, Timothy S. (2009) An Empirical Investigation of New Bond Issue Yield Spreads, Default Risk and Split Ratings. The International Journal of Banking and Finance, 6 (1). pp. 141-160. ISSN 1617-722

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Abstract

This paper attempts to explain the yield spreads charged to new corporate debt issues by comparing the initial yields of a set of 3,287 securities issued over eleven years in the US. We use the measure of constant maturity Treasury rates on the day of issue against the Moody’s Aaa Corporate Bond index for the week prior to the issue, and the yield on a daily index of long-term Treasury securities on the issue date. The influences of credit ratings and disagreement between rating agencies as reflected in split ratings and the interactions between these characteristics are measured. The contributions of sinking fund provisions, call or refunding status, overseas issue and contractual security arrangements are evaluated separately. The results support the view that the higher yields are observed when ratings of agencies differ and that factors associated with the issues also are significant drivers of the yield difference.

Item Type: Article
Uncontrolled Keywords: Yield spreads, split ratings, bond index, credit rating effect, terms of debt issues
Subjects: H Social Sciences > HG Finance
Divisions: School of Economics, Finance & Banking
Depositing User: Mrs. Norazmilah Yaakub
Date Deposited: 31 Oct 2018 00:54
Last Modified: 31 Oct 2018 00:54
URI: http://repo.uum.edu.my/id/eprint/25086

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