Corporate Yield Spreads and Sovereign Default Risk
Corporate Yield Spreads and Sovereign Default Risk

Summary/Abstract: This paper analyzes and quantifies the importance of sovereign risk in determining corporate yield spreads in Tunisian bond market. We investigate the yield spread associated with bonds issued in Tunisian primary market by major issuers (leasing, bank…). The results suggest that the credit spreads of these bonds tend to be positively related to sovereign risk. Surprisingly, Tunisian yield spreads are only strongly affected by the rating provided by Moody’s. Also, empirical findings reveal that the private ratings are explained by the sovereign credit quality. A closer look point to an important role for sovereign risk in determining credit premiums associated with Tunisian new bond issues.

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