Behavior of default-risk premiums for corporate bonds and commercial paper

The question addressed in this paper is whether default-risk premiums for short-term and for long-term securities behave differently over time. The question is important because it affects decisions by corporations and state and local governments as to the maturity structure of their debt. It also affects decisions by investors as to the maturity and the type and grade of security in which they invest. Several hypotheses have been advanced about the behavior of default-risk premiums for different maturities. The purpose of this paper is to test these hypotheses empirically with a set of data heretofore unused. In so doing, new insights are gained into the behavior of default-risk premiums for different maturities.