1. THE YIELD SPREAD ON NEW ISSUES OF CORPORATE BONDS.
- Author
-
EDERINGTON, LOUIS H.
- Subjects
CORPORATE bonds ,YIELD to maturity ,CORPORATE finance ,BOND ratings ,SPREAD (Finance) - Abstract
Over the past decade there have often been sizable differences between the offering yields on new issues of corporate bonds and the market yields on bonds of similar quality of the secondary market. In the latter half of the 1960's, this yield spread was consistently positive and at times quite large. For instance, in 1967, 1968, and 1969 Moody's average of offering yields on new Aa public utility issues exceeded Moody's series for seasoned utility issues with the same rating by an average of 40 basis points. In late 1970 and early 1971, the yield spread declined as interest rates fell, and in a number of instances negative yield spreads were observed. This paper examines the reasons for this yield spread and its fluctuations over time. Three hypotheses are presented and the evidence of past studies in support of each is analyzed; then the results of a study of the yield spread on corporate bonds issued competitively during the period January 1, 1964 through February 28, 1971 are reported. [ABSTRACT FROM AUTHOR]
- Published
- 1974
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