Abstract
This study aims to predict credit spreads and formulate high-yield curves in the primary market for high-yield corporate bonds in Norway, Sweden, and Denmark. The focus of this investigation is the credit spread at the time of issue. The impact of various company-specific, issue-specific, and market-specific factors on bond pricing is examined via ordinary least squares regression models. A cross-sectional, empirical analysis was carried out, utilizing a sample of 1104 high-yield corporate bonds, based on information derived from Stamdata spanning 1997 to 2023.
On a general scale, our definitive model accounts for 61.3%, 71.3%, and 87.5% of the credit spread variations for bonds issued in Norway, Sweden, and Denmark, respectively. Our empirical findings reveal that the distance-to-default variable singularly contributes significantly to the explanatory power of the credit spread for bonds in these three markets. In Norway, this variable alone accounts for 54% of the credit spread variation. In Sweden, it explains 63%, and in Denmark, it accounts for 74%. However, the data set for Denmark was limited, making it imprudent to draw firm conclusions based on our analysis - more data is required from the Danish market for definitive conclusions.
Most variables used in our comprehensive models for each market cannot be predicted or accessed by any party that is not actively involved in the bond issuance process. Therefore, when forecasting future high-yield curves for these markets, we relied solely on the distance-to-default variable as it consistently yielded robust results. Due to insufficient data regarding bond ratings, it was not feasible to create rating-based high-yield curves. As a result, we generated aggregated high-yield curves for each market.
This thesis not only assesses the factors influencing bond pricing at the point of issue but also endeavours to predict future high-yield curves. As such, it is a valuable resource for practitioners who establish credit spreads at issue, as well as those seeking to predict high-yield curves.
Uddannelser | Cand.merc.fin Finance and Investments, (Kandidatuddannelse) Afsluttende afhandling |
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Sprog | Engelsk |
Udgivelsesdato | 2023 |
Antal sider | 97 |
Vejledere | Anders Bjerre Trolle |