Search Results
Showing results 1 to 3 of approximately 3.
(refine search)
Conference Paper
Financial innovation and corporate default rates
Corporate default rates have been unusually low in recent years, both relative to historical rates and to forecasts of economists and ratings agencies. We examine the hypothesis that financial innovation has provided new financing options for distressed firms, which are consequently able to postpone or avoid default. Consistent with this hypothesis, we find that in recent years the incidence of early default has decreased, even after controlling for business cycle effects. Next, we estimate a model for predicting aggregate monthly defaults and find that, if financial innovation is ignored, ...
Report
Credit default swap auctions
The rapid growth of the credit default swap (CDS) market and the increased number of defaults in recent years have led to major changes in the way CDS contracts are settled when default occurs. Auctions are increasingly the mechanism used to settle these contracts, replacing physical transfers of defaulted bonds between CDS sellers and buyers. Indeed, auctions will become a standard feature of all recent CDS contracts from now on. In this paper, we examine all of the CDS auctions conducted to date and evaluate their efficacy by comparing the auction outcomes to prices of the underlying bonds ...
Journal Article
Signal or noise? Implications of the term premium for recession forecasting
Since the 1970s, an inverted yield curve has been a reliable signal of an imminent recession. One interpretation of this signal is that markets expect monetary policy to ease as the Federal Reserve responds to an upcoming deterioration in economic conditions. Some have argued that the yield curve inversion in August 2006 did not signal an imminent recession, but instead was triggered by an unusually low level of the term premium. This article examines whether changes in the term premium can distort the recession signal given by an inverted yield curve. The authors use the Kim and Wright ...