The Relation between Two Kinds of Par Yield Curves: Benchmark Par Yield Curve and Company Par Yield Curve

This study investigates the relation between two kinds of par yield curves estimated in Korean bond market: benchmark par yield curve and company par yield curve. The former is published as a benchmark for corporate bonds with a given credit rating and the latter is utilized for valuing a specific corporate bond. Spot rate curves are extracted from the par yield curves by applying bootstrapping method. The spreads between the two spot rate curves are analyzed for 7 years (2005~2012) of corporate bond transaction data. Six results are obtained from various sub-samples classified by credit rating and maturity. 1) Most of the sample means of the spreads are above zero. 2) Negative average spreads are found mainly from the sample of BBB rated bonds. 3) Average spreads from the sample with credit greater than or equal to A tend to positively related with credit risk. 4) Absolute value of the average spreads are positively related with credit risk. 5) The average spreads are increased rapidly after the year of 2009. 6) The proportion of sub-samples having negative average spreads are decreased as the average maturity of the sample is shortened.