Survival and Default of Original Issue High-Yield Bonds

We study the default behavior of original issue high-yield bonds to answer the open question of how the probability of default changes over time. We use a flexible econometric method, the Cox proportional hazard, to model the default behavior of junk bonds over their life. The method allows us to include the impact of issue and issuer characteristics on the probability of and the time to default in the estimation. Using a large comprehensive sample, we find that the bonds face a constantly increasing default risk over time, with the most significant increase beyond four years after issuance.