Yield Spread and Term to Maturity: Default vs. Liquidity |
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Authors: | Antonio Díaz & Eliseo Navarro |
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Institution: | Universidad de Castilla–La Mancha, Albacete, Spain;, Universidad de Castilla–La Mancha, Albacete, Spain |
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Abstract: | The aim of this paper is the analysis of the yield spreads between Treasury and non–Treasury Spanish fixed income assets and its relationship with the term to maturity. We find a downward sloping term structure of yield spreads for investment–grade bonds that seems to be contrary to the 'crisis at maturity' theory. However, we claim that this outcome is caused mainly by the effect of liquidity on yield spreads. Once the effect of liquidity and other factors are removed we find that there is a positive relationship between default premiums and term to maturity. That result is now consistent with the existing literature. |
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Keywords: | corporate bonds yield spread default risk liquidity term to maturity |
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