9th Symposium on Finance, Banking, and Insurance
Universität Karlsruhe (TH), Germany, December 11 - 13, 2002

Abstract

Bond Yield Spreads and Country Risk

Bert Scholtens

Department of Finance
University of Groningen

This paper investigates how bond yield spreads are related to country risk. Bond prices and bond yields are determined in the secondary market. Therefore, bond yields and their spread vis-à-vis US Treasury bonds might provide a continuous and more reliable information base than traditional measures of country risk. We aim at analyzing how changes in the bond yield spread indicate changes in country risk. It turns out that there is a strong relation between the two. Furthermore, we show that higher yield spreads and higher b’s result in larger changes in the bond yield spread.