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Sovereign Bond Spreads and Credit Sensitivity

Author

Listed:
  • Ricardo Schefer
Abstract
Expectations of risky bond payments are unobservable and recovery rates for sovereigns are hard to estimate because they have no contractual claims to defined assets and samples of defaults are limited. A geometric version of credit spread is used to derive expected payments, dependent on idiosyncratic risk and unrelated to interest rates. The expectations are used to define a measure of price sensitivity to credit risk perceptions, or credit duration, improving the ambiguity of modified yield duration.

Suggested Citation

  • Ricardo Schefer, 2020. "Sovereign Bond Spreads and Credit Sensitivity," CEMA Working Papers: Serie Documentos de Trabajo. 758, Universidad del CEMA.
    • Handle: RePEc:cem:doctra:758
    as

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    File URL: https://ucema.edu.ar/publicaciones/download/documentos/758.pdf
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    More about this item

    Keywords

    bond; sovereign; spread; expected; risk neutral; default; duration; yield;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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