Abstract
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | TILEC |
| Number of pages | 37 |
| Volume | 2007-015 |
| Publication status | Published - 2007 |
Publication series
| Name | TILEC Discussion Paper |
|---|---|
| Volume | 2007-015 |
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Keywords
- Syndicated Lending
- Loan Rates
- Credit Derivatives
- Credit Markets
- Credit Spreads
Cite this
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Credit Derivatives and Loan Pricing. / Norden, L.; Wagner, W.B.
Tilburg : TILEC, 2007. (TILEC Discussion Paper; Vol. 2007-015).Research output: Working paper › Discussion paper › Other research output
TY - UNPB
T1 - Credit Derivatives and Loan Pricing
AU - Norden, L.
AU - Wagner, W.B.
N1 - Pagination: 37
PY - 2007
Y1 - 2007
N2 - This paper examines the relationship between the new markets for credit default swaps (CDS) and the pricing of syndicated loans to U.S. corporates. We find that changes in CDS spreads have a significantly positive coefficient and explain about 25% of subsequent monthly changes in aggregate loan spreads during 2000-2005. Moreover, when compared to traditional loan pricing factors, they turn out to be the dominant determinant of loan spreads. In particular, they explain loan rates much better than same rated bonds. This suggests that, even though CDS and bond markets may equally price market credit risk, a substantial part of CDS prices additionally contains loan-specific information. We also find that, over time, new information from CDS markets is incorporated into loans faster, but information from other markets is not. We argue that this indicates that the markets for CDS influence banks’ loan pricing behavior and thus have an impact on actual financing decisions in the economy.
AB - This paper examines the relationship between the new markets for credit default swaps (CDS) and the pricing of syndicated loans to U.S. corporates. We find that changes in CDS spreads have a significantly positive coefficient and explain about 25% of subsequent monthly changes in aggregate loan spreads during 2000-2005. Moreover, when compared to traditional loan pricing factors, they turn out to be the dominant determinant of loan spreads. In particular, they explain loan rates much better than same rated bonds. This suggests that, even though CDS and bond markets may equally price market credit risk, a substantial part of CDS prices additionally contains loan-specific information. We also find that, over time, new information from CDS markets is incorporated into loans faster, but information from other markets is not. We argue that this indicates that the markets for CDS influence banks’ loan pricing behavior and thus have an impact on actual financing decisions in the economy.
KW - Syndicated Lending
KW - Loan Rates
KW - Credit Derivatives
KW - Credit Markets
KW - Credit Spreads
M3 - Discussion paper
VL - 2007-015
T3 - TILEC Discussion Paper
BT - Credit Derivatives and Loan Pricing
PB - TILEC
CY - Tilburg
ER -