What explains the recent increase in Canadian corporate bond spreads: FB3-7/2017-2E-PDF

"The spread between the yield of a corporate bond and the yield of a similar Government of Canada bond reflects compensation for possible default by the issuing firm and compensation for additional risks beyond default. Using the approach proposed by Gilchrist and Zakrajšek (2012), we find that roughly two-thirds of the total 1.2-percentage-point increase in corporate bond spreads from July 2014 to September 2016—a period when oil prices were low—is due to higher compensation for possible default. Default risk explains most of the increase of spreads for energy and high-yield firms but explains almost none of the increase for financial and investment-grade firms. This suggests that liquidity risk and other factors beyond possible default affected spreads of financial and other investment-grade firms"--Abstract, p. [2].

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Department/Agency Bank of Canada.
Title What explains the recent increase in Canadian corporate bond spreads
Series Title Staff analytical note = Note analytique du personnel,
Publication Type Series - View Master Record
Language [English]
Format Electronic
Electronic Document

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Note Cover title.
Date c2017.
Number of Pages 9 p. (un-numbered pages) :
Catalogue Number
  • FB3-7/2017-2E-PDF
Subject Terms Bonds, Capital markets