Abstract
The author examines corporate bond yield spread innovations for different credit quality and maturity portfolios using option-adjusted spread data from the Salomon Brothers Yield Book for 1984–1999, and finds that credit spread volatility and the sensitivity of credit spreads to changes in economic conditions are clearly related to the credit quality and maturity of a corporate bond. These relations are largely consistent with predictions of a model of the default margin of credit spreads. Evidence is provided that a considerable portion of yield spread volatility is due to changes in the non-default margin components of the corporate bond yield spread.
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