Skip to:
  1. Main navigation
  2. Main content
  3. Footer
Working Paper

On Forecasting the Term Structure of Credit Spreads

Download pdf
Predictions of firm-by-firm term structures of credit spreads based on current spot and forward values can be improved upon by exploiting information contained in the shape of the credit-spread curve. However, the current credit-spread curve is not a sufficient statistic for predicting future credit spreads; the explanatory power can be increased further by exploiting information contained in the shape of the riskless-yield curve. In the presence of credit-spread and riskless factors, other macroeconomic, marketwide, and firm-specific risk variables do not significantly improve predictions of credit spreads. Current credit-spread and riskless-yield curves impound essentially all marketwide and firm-specific information necessary for predicting future credit spreads.
04.01.2007ISSN 2573-7953 WP 07-05DOI 10.26509/frbc-wp-200705
Keywords term structure of credit spreads, forecasting future credit spreads
JEL Classification Codes G12

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Krishnan, C.N.V., Peter Ritchken, and James B. Thomson. 2007. “On Forecasting the Term Structure of Credit Spreads.” Federal Reserve Bank of Cleveland, Working Paper No. 07-05. https://doi.org/10.26509/frbc-wp-200705