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Fluctuations in the risk of a large increase in unemployment are examined. The analysis compares medium‐term risks—that is, risks at a 3‐year horizon—to those over a 1‐year horizon. The primary approach involves quantile regressions. Robustness exercises examine risks using a logistic regression to model the probability of a large increase in the unemployment rate. U.S. experience reveals an elevated risk of large increases in unemployment over the medium term when credit growth is high and when the unemployment rate is low. Near‐term risks to unemployment are closely tied to changes in corporate bond spreads or the slope of the yield curve, consistent with research on recession prediction, but these factors do not play a sizable role in medium‐term risks. These results highlight the value of considering different near‐ and medium‐term risk factors. [ABSTRACT FROM AUTHOR]

The fixed income market of the United States is valued, as of 2021, at USD 46 trillion, almost double that of the domestic stock market, refuting common belief that stocks are a more favoured form of investment. Fixed income instruments however, are also not as secure and risk-free as was traditionally believed; they have ample scope for taking risk and earning higher returns. This paper attempts to study four main factors out of a multitude, that affect bond yields and build 5 models using Ordinary Least Squares Regression to confirm the direction and strength of these relationships. We use two types of Treasury Inflation Protected Yields (short-term and longterm) and three types of Corporate bond Yields (based on varying credit ratings) for the purpose. The influencing factors under study are inflation, policy rates and real economic growth. The paper uses data for a period of 21 years (2000-2021) and concludes its findings using econometrical techniques. We also later test our data for autocorrelation, multicollinearity and a structural break post December, 2019 owing to the pandemic. We find relationships in sync with our established a priori expectations and no structural break. [ABSTRACT FROM AUTHOR]

I identify significant effects of devaluation risk on interest rates and output using US silver coinage policy news between 1878 and 1900 as clean shocks to exchange rate expectations. The Free Silver movement heightened fears the United States would abandon the gold standard and depreciate the dollar. Because Congress, rather than a central bank, set silver coinage policy, silver policy news was likely uncorrelated with economic shocks. Corporate bonds exposed to dollar devaluation returned an additional 1 percent relative to safer bonds when silver risk decreased. Additionally, increased silver coinage risk is associated with an economically significant fall in industrial production. [ABSTRACT FROM AUTHOR]

In contrast to previous studies documenting positive abnormal returns to target shareholders, we find that hedge fund activism significantly reduces bondholders' wealth. The average excess bond return is −3.9% around the initial 13D filing, and is an additional −4.5% over the remaining year. Excess bond returns are related inversely to subsequent changes in cash and assets (loss of collateral effects) and directly to changes in total debt. Confrontational campaigns and the acquisition of at least one seat on the target's board elicit more negative bond returns. We also find an expropriation of wealth from the bondholder to the shareholder. [ABSTRACT FROM PUBLISHER]

Using a complete record of U.S. over-the-counter (OTC) secondary trades in corporate bonds, we estimate average transaction costs as a function of trade size for each bond that traded more than nine times between January 2003 and January 2005. We find that transaction costs decrease significantly with trade size. Highly rated bonds, recently issued bonds, and bonds close to maturity have lower transaction costs than do other bonds. Costs are lower for bonds with transparent trade prices, and they drop when the TRACE system starts to publicly disseminate their prices. The results suggest that public traders benefit significantly from price transparency. [ABSTRACT FROM AUTHOR]

The chain of events that led to the disagreement between the White House and Congress over the increase of the federal debt limit from mid-October 1995 to March 1996 caused a default potential for Treasury securities. We examine the effect of this event chain on the yield spread between commercial paper and Treasury bills and find that both the three- and six-month yield spreads were reduced during the event period. The results suggest that the market charged a default risk premium to the Treasury securities. There is no evidence that these events had a sustained effect on T-bill rates since the yield spread during the post-event period resumed its pre-event level. [ABSTRACT FROM AUTHOR]

The article explains the prevalence of callable corporate bonds as the result of a tax differential in the United States, which gives borrowers a preference for callable rather than noncallable or puttable bonds. The tax effect is based on the difference in marginal tax rates between profitable borrowers and typical lenders. Profitable corporations with marginal tax rates of about 50 percent, while lenders' rates might be close to zero produce an incentive toward callable bonds which can be redeemed or replaced with a lower-cost bond. Transactions stated after taxes, after-tax discount rates, financial flexibility and interest rate premiums, government bonds, and a model of option provisions and interest rate changes are mentioned.

Observed differentials among yield series for different types of long-term instruments—U.S, government bonds, municipal bonds, corporate bonds and residential mortgages—vary considerably over time. Many factors can contribute to observed long-term yield spreads, the most important of which are "technical" factors that relate to differences in the particular characteristics of instruments or in the investors that purchase them. These include the tax status of various types of income accruing to the security and the degree of certainty associated with that income. Long-term yield spreads might also be affected by relative security supplies and relatively exogenous demands, e.g., Federal agency demands for residential mortgages, particularly if institutional constraints on permissible yields or on the various sectors that purchase the long-term instruments exist. Failure to consider the effects of all of these factors has frequently created misunderstanding both in the financial press and in academia about the causes of observed yield spreads. For example, attempts have been made to measure the impact on long-term yield spreads of individual factors—such as default risk or relative security supplies—by comparing yield series without proper regard for the concurrent impact of other technical and/or fundamental factors. This paper deals exclusively with long-term corporate and U.S. government bond yields. The most widely used series are Salomon Brother's Aa deferred call new issue utility yield and the Federal Reserve Bulletin's average yield on bonds maturing or callable in 10 years or more. The spread between these series is shown as the solid line in Chart 1. (The dashed line will be discussed later.) The spread has moved over a wide range, rising sharply from 40 basis points in late 1965 to 235 basis points in the second quarter of 1970, subsequently falling to 140 basis points in early 1973, and then rising to almost 300 b... [ABSTRACT FROM AUTHOR]

This paper analyzes the emergence of the inflation premium in long-term interest rates as the explicit result of borrowers' and lenders' behavior in the bond market in response to expectations' of price inflation. By exploiting a structural modelling approach, this analysis seeks not only to estimate the magnitude of the inflation premium due to this portfolio behavior but also to identify the (in general differential) contributions to it of borrowers' and lenders' behavior. To anticipate, the empirical results suggest that the equilibrium portfolio responses to a marginal 1% of expected price inflation change the nominal long-term interest rate by about 2⁄3%, and that this premium reflects approximately equal responses by borrowers and lenders. [ABSTRACT FROM AUTHOR]

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]

The article reports on two aspects of the equilibrium pricing of new and seasoned bonds. The first aspect is the analysis of the microeconomic determinants of newly issued or seasoned issue yield spreads like differences in coupon rates and call features. The second is the analysis of the macroeconomic determinants of yield spreads like economic growth, interest rate cycles, and changing marginal tax rates. The analysis includes multiple regression analysis to fit yield data for a sample of new corporate bonds.

The article reports on the costliness of inefficient coupons on municipal bonds. Capitalists and financiers buy more municipal bonds which sell close to their par value which is the lowest yield but with a coupon enabling its sale near par value. Also, investors try to make the marginal utility per dollar that is invested in each bond equal. However, coupon payments on municipal bonds are costly to the investor as opposed to U.S. Treasury or corporate bonds.

In recent years, the number of downgrades in corporate bond ratings has exceeded the number of upgrades, leading some to conclude that the credit quality of U.S. corporate debt has declined. However, an alternative explanation of this apparent decline in credit quality is that the rating agencies are now using more stringent standards in assigning ratings. An ordered probit analysis of a panel of firms from 1978 through 1995 suggests that rating standards have indeed become more stringent, implying that at least part of the downward trend in ratings is the result of changing standards. [ABSTRACT FROM AUTHOR]

This comment describes the U.S. federal income tax treatment of corporate bonds that are indexed for inflation and argues that these bonds do not have a tax-induced clientele in the United States. [ABSTRACT FROM AUTHOR]

This paper analyzes the circumstances under which tax considerations favor or disfavor the use of index-linked corporate bonds. Using a model similar to Miller's, investors' choices of assets depend on their tax preferences for interest income versus capital gains and their preferences for the timing of returns. It is concluded that the absence of index- linked bonds in the U.S. cannot be attributed solely to tax reasons. However, following the 1986 Tax Reform Act, the tax code is expected to disfavor the use of index-linked bonds. [ABSTRACT FROM AUTHOR]

This paper presents more detailed evidence on the behavior and relationships of various interest rates in the United States since the Accord of March, 1951. Spectral analytic techniques are utilized in examining (1) how rates of return on different securities of specific maturity vary through time, and (2) how rates on securities with different terms to maturity appear to be related. Spectral analysis appears especially well suited to examination of interest rate relationships since it is a mathematical tool equipped to deal specifically with the mixture of randomness and regularity typically contained in an interest rate series. As such, it yields more insights into interest rate movements and relationships than conventional techniques of analysis which depend on specified periodicities. [ABSTRACT FROM AUTHOR]

We propose an integrated bond portfolio optimization model based on the popular cash-flow matching and immunization strategies. The underlying mathematical program, not only minimizes the initial required capital for the creation of the least cost bond portfolio, satisfying the connected series of liabilities, but also handles the uncertainty of parallel and symmetric shifts on the term structure of short rates. Moreover, a complete investment policy statement regarding the bond portfolio’s structure, the level of diversification, the amount of transaction costs and the lot sizes, is precisely formulated. We verify the validity of the proposed approach through an illustrative empirical testing application, using a well-diversified investment universe of US and European corporate bonds, as well as international sovereign bonds. The qualitative and technical conclusions we report, document the model’s effectiveness and usability. [ABSTRACT FROM AUTHOR]

The article presents commentary on a paper written by Theodore Levitt entitled "Investment, Depression, and the Assurance of Prosperity," which appeared in the September, 1954 edition of the "Journal of Finance." In that paper Levitt described a proposal under which the U.S. government would guarantee the yields on bonds issued by certain industries. The author of the current paper faults Levitt's ideas on several grounds. He views the plan as an unwise intrusion by the government into free markets, and questions how the "selected industries" targeted by the plan would be chosen.

In this paper, using the measures of the credit risk price spread (CRiPS) and the standardized credit risk price spread (S-CRiPS) proposed in Kariya's (A CB (corporate bond) pricing model for deriving default probabilities and recovery rates. Eaton, IMS Collection Series: Festschrift for Professor Morris L., 2013) corporate bond model, we make a comprehensive empirical credit risk analysis on individual corporate bonds (CBs) in the US energy sector, where cross-sectional CB and government bond price data is used with bond attributes. Applying the principal component analysis method to the S-CRiPSs, we also categorize individual CBs into three different groups and study on their characteristics of S-CRiPS fluctuations of each group in association with bond attributes. Secondly, using the market credit rating scheme proposed by Kariya et al. (2014), we make credit-homogeneous groups of CBs and show that our rating scheme is empirically very timely and useful. Thirdly, we derive term structures of default probabilities for each homogeneous group, which reflect the investors' views and perspectives on the future default probabilities or likelihoods implicitly implied by the CB prices for each credit-homogeneous group. Throughout this paper it is observed that our credit risk models and the associated measures for individual CBs work effectively and can timely provide the market credit information evaluated by investors. [ABSTRACT FROM AUTHOR]

In this article, the authors discusses how to improve the accuracy of ratings provided by credit rating agencies (CRAs) and propose an expiring, capped strict liability rule with a contractual component. It mentions that beneficial role of CRAs in financial markets and the problem of systemic risk. It also mentions that how the strict liability rule should be corrected to cope with this problem in the two cases of corporate bonds and structured finance products.

The article focuses on the global financial crisis of 2008 on the aspects of financial industry such as on the interest rate swaps in the U.S. Topics discussed include impact on the LIBOR and corporate bond rate, causes of action affected by the swaps, and effectiveness of the doctrine of frustration of commercial purpose as the financial recovery for the losers in interest rate swaps during the financial crisis.

This Article aims to explore the securitization of intellectual property [hereinafter "IP"], introducing the promise of said financing method in the growing field of IP. In recent years, IP has become a major component of developed economics. Raising funds for research, development, and the creation of new inventions and works of authorship has never been an easy task. This Article, therefore, presents a review of securitization in the field of IP and in doing so makes a few major contributions. It offers a thorough discussion of securitization, its benefits, and its prominence over more traditional methods of financing, such as bank lending, issuance of corporate bonds, and venture capital funding. Next, it offers an account of the current use and scope of securitization in relation to IP assets such as trademarks, copyrights, and patents. The Article also considers the benefits and challenges of securitizing IP and suggests preliminary solutions to these challenges. [ABSTRACT FROM AUTHOR]

Overview: Market wobbles as wage growth stays subdued Global financial markets wobbled over the last month or so. Since early July, US equities have fallen around 3%, with some Eurozone indices down as much as 9%. Other risk assets have also seen notable corrections - including high-yield corporate bonds., Does this matter? The optimist would say 'no'. First, the size of the correction is not very large, comparable to others seen over the last year (e.g. in February and Q3/Q4 of 2013) which were soon reversed., Second, negative wealth effects from the correction will mostly impact a limited stratum of the population with large amounts of financial assets and may not have a big impact on consumption. And housing wealth effects remain positive in the US, UK and many other countries, with prices still rising., But we cannot be entirely dismissive of the risks from the recent sell-off, especially if it extends further. This is due to the moderate nature of the global upswing - and especially the weakness of wage growth., Our forecast assumes wage growth strengthens across the advanced economies over the next 18 months but this has not happened yet. In the meantime, central banks are relying to a considerable extent on positive wealth effects to buoy consumer sentiment and spending. If wealth effects fade, the consumer upswing could be vulnerable., The US looks perhaps less at risk than a few months ago. Strong Q2 growth means we have upgraded our GDP forecasts this month and there were signs of firming wages in Q2 also., For the Eurozone, there is more cause for concern. Unemployment there remains high, wage growth is anaemic and house prices are still falling in many countries. GDP is likely to have contracted again in a number of key countries in Q2, and we have edged down our growth forecast for 2014 again this month., The Eurozone is also most at risk from other current risk factors, in particular the tensions in Ukraine. But while we now forecast contracting GDP in Russia this year, there have been moderate upgrades this month to our forecasts in China and India. [ABSTRACT FROM AUTHOR]

We present a model with agency costs where heterogeneous firms raise finance through either bank loans or corporate bonds and where banks are more efficient than the market in resolving informational problems. We document some major long-run differences in corporate finance between the United States and the euro area, and show that our model can explain those differences based on information availability. The model fits the data best when the euro area is characterized by lower availability of public information about corporate credit risk relative to the United States, and when European firms value more than United States firms banks' flexibility and information acquisition role. [ABSTRACT FROM AUTHOR]

We investigate the impact of the Sarbanes-Oxley Act (SOX) on corporate bondholder value by examining the bond market reaction to news events leading up to the passage of SOX. The net impact ofSOX on bondholder value is difficult to predict, and there are many reasons why it may be viewed as either good or bad news. Our primary analysis reveals a significant decline in average bondholder value around these events. In addition, cross-sectional tests find that the decline is significantly larger among riskier bonds and among bonds held by firms that are expected to experience the greatest changes under SOX. Thus, our findings are consistent with the bond market expecting the exogenously imposed changes under SOX to make bondholders worse off. [ABSTRACT FROM AUTHOR]

The article presents information on the corporate yield spreads and the factors that affect daily changes in the yield spread in the U.S. It considers the risk factors of equity market, changes in volatility and changes in the spot rate as the major factors that bring changes in the credit spread. The article is further supported by several tables depicting average credit spreads and descriptive statistics.

We examine how country-level legal and institutional investor protection shapes contractual creditor protection. We examine debt covenant information from foreign corporate bonds issued in the US from more than 50 countries between 1991 and 2007. We find that bonds of firms incorporated in countries with stronger creditor rights use fewer covenants. This finding suggests that creditor protection substitutes for covenants in reducing the agency cost of debt. In contrast, bonds of firms with stronger shareholder rights or firms with stronger firm-level corporate governance use more covenants. These findings support the notion that firms with stronger shareholder control may face an increase in the shareholder-bondholder conflict and therefore prefer to use more covenants. However, greater shareholder rights are not associated with the use of more covenant restrictions on equity issuance, as firms with greater minority shareholder protection are unlikely to suffer such equity dilution. [ABSTRACT FROM AUTHOR]

We examine the impact of state payout restrictions on firms' credit ratings and bond yields. Using publicly traded bond data for a sample of large firms, we find that firms incorporated in states with more restrictive payout statutes (for example, New York and California) have better credit ratings and significantly lower yield spreads (about 8.7 percent) than do firms incorporated in less restrictive states (for example, Delaware). These results suggest that incorporation in a more restrictive state provides a credible commitment mechanism for avoiding some of the moral hazard problems associated with long-term debt. This commitment corresponds to an economically and statistically significant difference in market yields and firm-financing costs and is robust to controls for ownership, governance, debt type, Delaware or non-Delaware incorporation, and covenant usage. Overall, our results are consistent with the notion that Delaware incorporation has hidden costs for some firms. [ABSTRACT FROM AUTHOR]

Grammatical Evolution (GE) is a novel data driven, model induction tool, inspired by the biological geneto-protein mapping process. This study provides an introduction to GE, and demonstrates the methodology by applying it to model the corporate bond-issuer credit rating process, using information drawn from the financial statements of bond-issuing firms. Financial data and the associated Standard & Poor's issuer-credit ratings of 791 US firms, drawn from the year 1999/2000 are used to train and test the model. The best developed model was found to be able to discriminate in-sample (out-of-sample) between investment-grade and junk bond ratings with an average accuracy of 87.59 (84.92)% across a five-fold cross validation. [ABSTRACT FROM AUTHOR]