The Relationship Between Credit Spreads and Interest Rates
Research has shown a negative correlation between interest rates and credit spreads that some find counterintuitive. In the Summer 2007 Journal of Fixed Income, Lin and Curtillet find that different risk components may have different relationships with the interest rate.
Lin and Curtillet find that whether spreads widen in response to an increase in the Fed target rate depends on the lagged response of the yield curve.
On a longer term basis, credit spreads are not determined by interest rates. Instead, they tend to widen in response to crises, significant financial events, and recessions.
For more information, see all articles on: Economic Analysis, Fixed income investments, Investing in bonds See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
