The Relationship between Credit Default Swap Spreads, Bond Yields, and Credit Rating Announcements
2004; RELX Group (Netherlands); Linguagem: Inglês
10.2139/ssrn.2173171
ISSN1556-5068
AutoresMirela Predescu, John C. Hull, Alan White,
Tópico(s)Banking stability, regulation, efficiency
ResumoA company’s credit default swap spread is the cost per annum for protection against a default by the company. In this paper we analyze data on credit default swap spreads collected by a credit derivatives broker. We first examine the relationship between credit default spreads and bond yields and reach conclusions on the benchmark risk-free rate used by participants in the credit derivatives market. We then carry out a series of tests to explore the extent to which credit rating announcements by Moody’s are anticipated by participants in the credit default swap market.
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