Inflation risk in corporate bonds

• Autores: Johnny Kang, Carolin Pflueger
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 70, Nº 1, 2015, págs. 115-162
• Idioma: inglés
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• Resumen

  • We argue that corporate bond yields reflect fears of debt deflation. When debt is nominal, unexpectedly low inflation increases real liabilities and default risk. In a real business cycle model with optimal but infrequent capital structure choice, more uncertain or procyclical inflation leads to quantitatively important increases in corporate log yields in excess of default-free log yields. A panel of credit spread indexes from six developed countries shows that credit spreads rise by 14 basis points if inflation volatility or the inflation-stock correlation increases by one standard deviation.