I’m trying to understand what happens to the credit spread of a convertible bond when yields of the convertible are negative. I’ve heard there is an implied credit spread as spreads can’t really be negative. I’ve tried looking in the usual sources but I can’t find much specifically related to negative yields. Happy to look at link etc.
Negative yields will typically be negative do to the value of option (conversion value + time value). If you subtract out the value of that option as determined by a blackscholes model the remaining value will be the bond component. Using a RATE function will then give you the implied credit spread.