Currency Effects on Credit Spreads for the Same Borrower

Summary

The document asks why credit spreads on bonds from the same borrower can differ between currencies, with USD and CHF as examples. One response attributes the difference partly to currency-specific default probabilities and recovery rates. This frames credit risk as potentially dependent on the debt and market context rather than as a single spread that must be identical across all issues from an issuer.

A second response suggests the question may concern a currency basis adjustment, which can reflect relative liquidity and credit conditions across markets as well as supply and demand. The answers are brief and point to other material rather than deriving a pricing framework, defining a specific adjustment formula, or presenting evidence. As a result, the document introduces possible drivers of cross-currency spread differences but does not establish how to isolate their effects or calculate an adjustment. Readers should treat it as a starting explanation, not a complete method for comparing bonds across currencies.

Key ideas

• Credit spreads on bonds from one issuer can differ across currencies.
• Differences in default probability and recovery may contribute to cross-currency spread variation.
• Currency basis adjustments may reflect relative liquidity, credit conditions, and supply and demand.
• The discussion identifies possible drivers but does not provide a calculation method or evidence to quantify them.

Tags

# credit spread ajustment considering currency


# credit spread ajustment considering currency












I would like to understand what is credit spread basis currency ajustment.

credit spread implied by a usd bond won't be the same as one implied by a chf bond, isn't it ?

Do you have any elements (litterature, explanations or argument) to help me have a real understanding about it ?

Many thanks,

## Answer by Jiem (score 1)

https://quant.stackexchange.com/a/40877

Regarding part of your question about the reason why credit spread is diffirent between USD debt and CHF debt on the same obligor. It is because the probability of default and recovery aren't the same. I have explained this by 2 examples in the below question :

https://quant.stackexchange.com/a/40876/30239

## Answer by Don Kayum (score 0)

https://quant.stackexchange.com/a/40873

I think you may be talking about the currency basis adjustment. My understanding is that this reflects both the relative liquidity and credit risk of the markets. So, in summary it represents demand and supply and credit. There is a reasonable amount of literature available on the subject.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.