RATING AND OTHER FACTORS EXPLAINING THE CORPORATE CREDIT SPREAD: EMPIRICAL EVIDENCE FROM TUNISIAN BOND MARKET

This is an examination of the determinants of corporate bond credit spreads using both primary and secondary market spreads for Tunisian corporate bonds. The factors which I use as explanatory variables in our estimations can be divided into three categories: market variables, issue and issuer characteristics. To some extent, these three categories correspond to the different types of risk, namely interest rate risk, liquidity risk and credit risk. Using OLS regressions, our empirical results indicate that primary market spreads are sensible to issue characteristics such as rating. Also, spreads observed in secondary market are sensible to market variables namely Exchange Index and Slope, characteristics issuers and issues (Rating and Time to maturity). This is the first study to indicate that the explanatory power of factors depends of spreads modelled. Hence, corporate credit spreads are driven by both default and interest rate risk for the secondary market and only by default risk for the primary market.