Estimating Long-Maturity Corporate Bond Spreads from Comparable Bonds
Summary
The document discusses how to estimate a spread for a long-dated corporate bond when a matching rating-and-maturity curve may not be available. It points to Bloomberg’s credit curve search, where curves can be filtered by rating and industry, and notes that users can also construct a curve. The response emphasizes that a precise 23-year A- curve may be unavailable, so the estimate depends on selecting comparable bonds.
One suggested approach is to broaden the comparison group to investment-grade bonds in the same industry with A-level ratings and maturities spanning 20 to 30 years. Calculate their average spread over Treasuries, then apply that spread at the bond’s maturity point on the Treasury curve. The document also flags recovery assumptions and capital structure changes as factors that may affect valuation. This is a rough cohort-based estimate, not a precise market quote; the appropriate comparison set depends on the issuer and industry.
Key ideas
- Bloomberg credit curves can be searched by rating and industry, and users can build a curve.
- A precise long-maturity curve for a narrow rating category may not be available.
- Comparable bonds can be grouped by industry, rating range, and maturity range.
- An average spread from comparable bonds can be applied to the Treasury curve at the bond’s maturity.
- Recovery assumptions and capital structure changes may affect the spread estimate.
Tags
Full text
# Where can I find corporate bond spreads? # Where can I find corporate bond spreads? I am trying to price a 30 yr bond maturing in December 15, 2035. The bond is rated A- (S&P). Where can I find the spreads for corporate bonds rated A- maturing in 23 years (December 2035)? I have access to Bloomberg, but so far all I was able to find was individual bond yields. Is the 23 yr corporate spread available? Lastly, just to be sure. I use the 23 year spread + 23 treasury, and not the 30 year for a bond maturing in 2035? ## Answer by lady.den (score 2) https://quant.stackexchange.com/a/34255 On Bloomberg you can go to CRVF >> Credit >> From the rating section select A and in the curves search section search by 'A-'. The curves are broken down by industries, so would be best if you have a specific industry in mind. You can also build your own curve. ## Answer by Brian B (score 1) https://quant.stackexchange.com/a/4547 You may wish to consider this process a little more generally. That is to say, you are defining a cohort of comparable bonds as 23-year A- rated bonds. Bloomberg doesn't supply a long-dated A- curve, so no matter how you approach this, you will effectively be modeling this bond spread against others in its cohort. I suggest redefining the cohort to be 20-30 year bonds in the same industry with any level of A rating. Find the average spread $ s $ to treasuries and then apply $s$ to the 23-year point on the treasury curve to come up with a value. Needless to say, if you have views on recovery rate, capital structure changes, or other hard-to-model criteria you should consider them. The whole process is very fuzzy so you won't be introducing any extra error.
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