An Empirical Analysis Of Credit Spread

There's a large array of data series in the actual economic and financial en-vironment, which contain similar information mingled with a significant portion of noise that probably due to the measurement errors or idiosyncratic movements. Hence, we use a dynamic factor model and Kalman filtering techniques to sum-marize the information, eliminate the noise in many observed macroeconomic and financial series as well as extract potential economic factor which include the actual economic output, inflation, stock market volatility, growth rate of available funds and bond supply factor. Furthermore, by the use of no-arbitrage pricing model and the application of risk-neutral factors, the economic factors is associated with the term structure of Treasury yields and corporate bond credit spreads, and it get a unified analytical framework. Model estimation show that, the stock market volatil-ity has a stability and consistency effect on the bond market. Positive real economic output shocks increase Treasury yields,while it has reflected the effect on the credit spreads of corporate bonds across all maturities and credit-rating classes. Positive inflation shocks also increase Treasury yields and widen credit spreads, but there is only a strong impact on short-term Treasury and corporate bond credit spreads. The growth rate of the available funds increasing will reduce Treasury yields and credit spreads on corporate bond at a high credit-rating class, but it exerts a posi-tive effect on credit spreads of corporate bond at low credit-rating class, and show a persistent effect on the credit spreads and Treasury yield term structure Positive bonds supply shocks increase Treasury yields and widen credit spreads, but only a strong impact on short-term Treasury and corporate bond credit spreads as well. Proceeding to analyze the data from the macro-economic and financial market on benchmark interest rates and credit spreads, the article shows a internally consistent analytical framework.