What drives provincial-Canada yield spreads?

Authors: Booth, Laurence¹; Georgopoulos, George²; Hejazi, Walid¹

Source: Canadian Journal of Economics, Volume 40, Number 3, August/août 2007 , pp. 1008-1032(25)

Buy & download fulltext article:

Price: $48.00 plus tax (Refund Policy)

Abstract:

Abstract.

Although recent research has led to a deeper understanding of the factors determining yields on long-term Canada bonds, there has been little corresponding work on provincial bonds. By using a carefully constructed new data set, we establish two important results. First, provincial fiscal positions (debt and deficits) are an important factor in determining yield spreads between provincial and Canada bonds. Second, we show that provincial bonds are a substitute for corporate debt, in that during recessionary `flights to quality' their yields react like those on corporate bonds.

Keywords: E43; E44

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1365-2966.2007.00440.x

Affiliations: 1: Rotman School of Management, University of Toronto 2: Economics, Atkinson Faculty of Liberal and Professional Studies, York University

Publication date: 2007-08-01