Material Detail

This case quantifies how financial markets assign different default risk premiums to corporate bonds over time. This activity can be used as either (a) an instructor-led example in which the instructor shows –either on paper or a screen– the data and students analyze them, or (b) as a student exploration in which students find the specified data. Instructors with less time could use option (a) and instructors interested in their students learning about the FRED database could use option (b).

This activity plots the yields of a high-yield corporate bond (e.g. Moody's Baa Corporate Bond Yield) and a low-yield corporate bond (e.g. Moody's Aaa Corporate Bond Yield) and computes the difference between the two of them. This difference is an approximation of the corporate bond default risk premium and it displays both a secular trend and cyclical behavior.

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