Skip to main content
Article thumbnail
Location of Repository

The Slope of the Credit Yield Curve for SpeculativeGrade Issuers

By Jean Helwege and Christopher M. Turner


Many theoretical bond pricing models predict that the credit yield curve facing risky bond issuers is downward sloping. Previous empirical research (Sarig and Warga (1989) and Fons (1994)) supports these models. Our study examines sets of bonds issued by the same firm with equal priority in the liability structure, but with different maturities, thus holding credit quality constant. We find, counter to prior research, that risky bonds typically have upward-sloping credit yield curves. Moreover, when we combine our matched sets of bonds (no longer controlling credit quality), the estimated slope is negative, indicating a sample selection bias problem associated with maturity. The Slope of the Credit Yield Curve for Speculative-Grade Issuers Using option analysis, Merton (1974) shows that corporate bond spreads can either increase or decrease with maturity, depending on the risk of the firm: high-grade corporate issuers face upward-sloping credit yield curves while speculative-grade firms = credit yield curves are downward sloping or hump-shaped (i.e., mostly downward sloping). More recent theoretica

Year: 1999
OAI identifier: oai:CiteSeerX.psu:
Provided by: CiteSeerX
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • (external link)
  • (external link)
  • Suggested articles

    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.