Interest rates, stock returns and credit spreads: Evidence from German Eurobonds

Publication Type:
Journal Article
Economic Notes, 2005, 34 (1), pp. 35 - 50
Issue Date:
Filename Description Size
Thumbnail2005002093.pdf1.12 MB
Adobe PDF
Full metadata record
We investigate daily variations in credit spreads on investment-grade Deutschemark-denominated Eurobonds during the challenging 1994-1998 period. Empirical results, from a Longstaff and Schwartz (1995) two-factor regression, extended for correlated spread changes and heteroskedasticity, indicate strong persistence in spread changes. Consistent with theory and previous findings, changes in spreads are significantly negatively related to the term-structure level while, contrary to theory, the proxy for asset value does not yield a significant negative contribution. We even find a significant positive relation for Eurobonds with long maturity. Tentative interpretations are portfoliorebalancing activities or differing risk factor sensitivities on short- vs. long-maturity bonds. © Banca Monte dei Paschi di Siena SPA, 2005.
Please use this identifier to cite or link to this item: