%0 Journal Article
%T Are CDS Spreads Sensitive to the Term Structure of the Yield Curve? A Sector-Wise Analysis under Various Market Conditions
%J Journal of Risk and Financial Management | An Open Access Journal from MDPI
%D 2019
%R https://doi.org/10.3390/jrfm12040158
%X This study examines the impact of changes in the yield curve factors on the Credit Default Swap (CDS) spreads of the U.S. industrial sectors. Stock returns and the crude oil-based volatility index are used in a quantile regression framework to test the validity of Merton¡¯s model. The results suggest that the long-term factor of the yield curve is a negatively significant determinant of the CDS premia regardless of the sector and market state. The CDS spread of the financial sector exhibits sensitivity to the short-term factor of the yield rate in extreme market states. Basic materials, oil and gas and the utilities sector are responsive to variations in the medium-term factor of the yield rate in upmarket conditions. The empirical findings also suggest a significant inverse relationship between CDS spreads and stock returns. View Full-Tex
%U https://www.mdpi.com/1911-8074/12/4/158