Evidence of log-periodicity in corporate bond spreads

Abstract

In this paper, we looked for evidence of log-periodicity in recent US corporate bond spreads. While we found evidence of log-period behavior in both Aaa and Baa spreads, the evidence supporting log-periodicity in High Yield (HY) spreads was found to be weak. We conducted additional tests to confirm our results (bivariate spectral analysis, and surrogate data analysis) and confirmed log-periodicity in Aaa and Baa spreads but not in HY spreads. We attempt to explain this variance using the recently developed market microstructure models of Farmer, Sornette, Ausloos and others.