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I am looking for some references on quantifying the dependence between credit rating and bond yield. I have some data (found some Bloomberg indices which give average yield based on credit rating), but it is dense in some regions and sparse or non-existent in others.

I would like to model this somehow, especially in low-B rating area... Could you please recommend me some references and/or some ideas?

Thank you very much.

UPDATE Related Question on interpolating probabilities of default

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One potential solution would be to look at a high yield bond index, as suggested by the OP. Both J.P. Morgan and BofA publish sub-indexes based on issuer rating, for instance (think Barclay's might too). In general, though, there is no hard-and-fast rule, as it's really market-condition dependent.

When pricing a bond, one good way is to look at some comps, use their spread-to-worst data to figure out a reasonable credit spread for a potential issuer, add the spread to the YTM for the corresponding benchmark government-bond maturity, and then add 25-50 basis points as a new-issue premium for good measure.

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  • $\begingroup$ +1, you are the first to the party after almost 10 years :-) Accepting in amazement $\endgroup$
    – gt6989b
    Jul 28, 2023 at 3:01

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