The dynamics of Australian dollar bonds with different credit qualities

Jonathan Batten*, Warren Hogan, Seppo Pynnönen

*Corresponding author for this work

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

We investigate the long-term equilibrium relationship between Australian dollar bonds of different credit quality. Contrary to the expectations hypothesis, we find the yields of Eurobonds are not cointegrated with the equivalent maturity Government bond. Nevertheless, the results suggest that the yields of the different risk classes of Eurobonds are cointegrated with one another, with the higher-rated bond yields tending to lead the lower-rated yields. The paper also demonstrates that the cointegration relationship can be utilised in modelling the dynamics of the spread changes between Eurobonds and Government bonds.

Original languageEnglish
Pages (from-to)389-404
Number of pages16
JournalInternational Review of Financial Analysis
Volume9
Issue number4
Publication statusPublished - Dec 2000

Keywords

  • Cointegration
  • Credit spreads
  • E43
  • Equilibrium correction
  • Eurobonds
  • G15

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