Li Daokui, director of the Centre for China in the World Economy at the Tsinghua University School of Economics and Management and a member of the Chinese People's Political Consultative Conference, said, 'Allowing banks to participate in treasury bond transactions on exchanges will permit improved regulation of treasury bond risk
, and heighten the stability of the spot market.
By contrast, investors are currently not being well compensated for investment grade bond risk
, in our view.
For example, taking a Credit Default Swap of 200 basis points for an investment-grade instrument (Baa) as a reference, using Moody's (2008) non-payment statistics, with a recovery rate of 37% over an investment term of five years, the bond risk
premium is 176 basis points, which is 24 basis points less than the CDS.
In the model, the liquidity factor is regarded as an additional factor that does not span the yield curve, but improves the forecast of bond risk
The Markit iTraxx Europe Senior Financial Index of credit-default swaps on banks and insurers climbed 31 basis points to 126 basis points, also the biggest increase since 2007, according to data compiled by Bloomberg.
Michael Bauer and Glenn Rudebusch argue that similar measures of expectations may mismeasure the signaling effect because they ignore the effects of QE on bond risk
A repeat of the 2011 Eurozone debt crisis is almost assured in 2015 and yet financial markets price EU bond risk
as though it was negligible and Draghi's European Central Bank actually can buy bonds.
In fact, corporate bond risk
premiums in Sweden did not diverge much from economic fundamentals and only began to increase in 2011 after most of the policy rate increases took effect, as the chart on the next page shows.
Modest adjustment of the criteria used in mortgage bond risk
modeling would have radically altered the expected outcome, in some cases changing a huge profit to a disastrous loss.
This jump in perceived bond risk
premium, along with a higher 10-year U.
Corporate bond risk
fell in Europe by the most in seven months.
Debt inflows are picking up even after the Federal Reserve said on December 18 that it will start paring asset purchases that have driven capital to emerging markets, as local bond risk
has fallen to the lowest level in three months.