A Pure Test for the Elasticity of Yield Spreads

Percent                                                    Percent                                                    Percent

Panel A: AA-Rated Bonds

Panel B: A-Rated Bonds

Panel C: BBB-Rated Bonds

Figure 1. Moneyness of the doomsday call provision. To determine
the moneyness of the doomsday call provision, we compare the
doomsday spread to the yield spread. Based on a sample of doomsday
spreads of long bonds for each month during the 01:1993-12:1999
period, for each rating category, we plot the yield spread on the
corresponding long-term index ( 5), the average doomsday spread (μ),
the average doomsday spread plus one standard deviation (μ+σ), and
the average doomsday spread plus two standard deviations ( μ+2σ).

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