Research On The Correlation Between The Maturity Structure Of National Debt Interest Rate And Sovereign Credit Risk

With the outbreak and deepening of the European debt crisis,the sovereign debt crisis has spread from emerging markets to relatively developed countries.Constantly increasing of European countries’ sovereign credit risk and downgrading of the sovereign credit grade not only affect the economy of defaulting country,but also endanger other countries,which lead to aggravated financial panic in the market and even trigger a series of social as well as political problems that do harn to the world economy.In recent years,early warning and management about sovereign credit risk has drawn the attention of the industry and scholars.Treasury bond belongs to sovereign debt.When a sovereign country has default risk,it usually come with the sharp rise of treasury bond yield.Traditional researchs only focus on bond yields’ change,but this article attempts to take the term structure of bond yields as the research object.The term structure of bond interest rates,reflects the relationship and variation between spot interest rate and maturity of treasury bonds under the same risk level.The principal component analysis can not only extract the degree of the treasury interest rate changes,but also obtain short-term long-term interest spread,interest rate conduction and other information.Therefore,this article studies the correlation between the term structure of treasury bond interest rate and sovereign credit risk,trying to find out more effective information about early warning of the sovereign risk and managements.Based on daily data,this article uses the sovereign credit default premium as an indicator to measure the sovereign credit risk,and uses principal component analysis to study the treasury bonds rates of different countries including China,the United States,Japan and Greece.Then uses the extracted level factor and slope factor to analyze the correlation between them and sovereign credit risk.The correlation between the factors is analyzed through unit root,cointegration test,Granger causality test,VAR model,impulse response and variance decomposition.The study found that the sovereign credit risk has a positive correlation with the level facters of term structure.The sovereign credit risk not only caused the change of treasury bond yield,but also obviously affected the short-term spread.Compared Greece which has happened crisis event with the crisis-free countries,sovereign credit risk has a different effect on short-term and long-term interest spread,thus changing the shape of Greece’s treasury bond yield curve.Before the crisis,the sovereign credit risk tended to lead the changes in the term structure of the treasury bonds yield.