Safe Haven CDS Premiums

Klingler, Sven; Lando, David

doi:10.1093/rfs/hhy021

Cited by 43 publications

(7 citation statements)

References 29 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…We do not include these variables in our main tests because they are not available for the full sample period and therefore decrease the total number of available observations. Moreover, as noted by Klingler and Lando (), CDS premiums of safe countries do not necessarily reflect credit risk and can be affected by other variables, such as dealer banks' financial constraints and regulatory variables. We therefore view the control variables in models (5) and (6) of Table as better suited for testing the impact of U.S. credit risk on swap spreads.…”

Section: Empirical Analysis For Us Swap Spreadsmentioning

confidence: 98%

An Explanation of Negative Swap Spreads: Demand for Duration from Underfunded Pension Plans

Klingler

Sundaresan

2019

The Journal of Finance

Self Cite

View full text Add to dashboard Cite

The 30-year U.S. swap spreads have been negative since September 2008. We offer a novel explanation for this persistent anomaly. Through an illustrative model, we show that underfunded pension plans optimally use swaps for duration hedging. Combined with dealer banks' balance sheet constraints, this demand can drive swap spreads to become negative. Empirically, we construct a measure of the aggregate funding status of defined benefit pension plans and show that this measure helps explain 30-year swap spreads. We find a similar link between pension funds' underfunding and swap spreads for two other regions.

show abstract

Section: Empirical Analysis For Us Swap Spreadsmentioning

confidence: 98%

An Explanation of Negative Swap Spreads: Demand for Duration from Underfunded Pension Plans

Klingler

Sundaresan

2019

The Journal of Finance

Self Cite

View full text Add to dashboard Cite

show abstract

“…There is the question of what exactly sovereign CDS spreads capture. G10 Sovereign CDS markets for are not very liquid andKlingler and Lando (2016) show that CDS premium for safe sovereigns are primarily driven by regulatory demand. One alternative assumption is to assume that all sovereigns in the sample are risk-free and therefore,l t = 0.…”

mentioning

confidence: 99%

The U.S. Treasury Premium

Wei¹,

Im²,

Schreger³

2017

View full text Add to dashboard Cite

We quantify the difference in the convenience yield of U.S. Treasuries and the bonds of near default-free sovereigns by measuring the gap between the FX swap-implied dollar yield paid by foreign governments and the U.S. Treasury dollar yield. We call this wedge the "U.S. Treasury Premium." We find that this premium was approximately 21 basis points for five-year bonds prior to the Global Financial Crisis, increased up to 90 basis points during the crisis, and has disappeared since the crisis with the post-crisis mean at -8 basis points. We show the decline in the premium cannot be explained away by credit risk or FX swap market mispricings. In addition, we present evidence that the relative supply of government bonds in the United States and foreign countries affects the premium.

show abstract

“…We proxy issuer credit risk by the 5-year USD-denominated German CDS spread. Despite that Klinger and Lando (2018) show that the CDS spread of a safe haven country, like Germany, is a poor proxy for its credit risk due to regulatory hedging requirements of investment banks, this is consensually the best proxy for sovereign risk. Nevertheless, we also consider breakup and selective default risks.…”

Section: Segmentation In Observable Yieldsmentioning

confidence: 96%

“…This means that as German credit quality deteriorates, yields will go up, while bond prices will decline. Nevertheless, this effect is rather small, taking into account that 1) Klinger and Lando (2018) show that safe haven CDS contracts are poor proxies for credit quality, as their demand is primarily driven by regulatory hedging requirements of investment banks 2) German CDS do increase over the euro crisis, but it stays low and stable relative to other Eurozone CDS contracts. We also examine how average yields correlate with breakup risk, as in De Santis (2015) or Simon (2015).…”

Section: Decomposing Short and Long Maturity Yieldsmentioning

confidence: 99%

Much Ado About Nothing: A Study of Differential Pricing and Liquidity of Short and Long Term Bonds

2018

View full text Add to dashboard Cite

Are yields of long-maturity bonds distorted by demand pressure of clientele investors, regulatory effects, or default, flight-to-safety or liquidity premiums? Using data on German nominal bonds between 2005 and 2015, we study the differential pricing and liquidity of short and long maturity bonds. We find statistically significant, but economically negligible segmentation in yields and some degree of liquidity segmentation of short-term versus long-term bonds. These results have important policy implications for the e17.5 trillion European pension and insurance industries: long maturity bond yields seem appropriate for the valuation of long-term liabilities.

show abstract

Safe Haven CDS Premiums

Cited by 43 publications

References 29 publications

An Explanation of Negative Swap Spreads: Demand for Duration from Underfunded Pension Plans

An Explanation of Negative Swap Spreads: Demand for Duration from Underfunded Pension Plans

The U.S. Treasury Premium

Much Ado About Nothing: A Study of Differential Pricing and Liquidity of Short and Long Term Bonds

Contact Info

Product

Resources

About