Credit Ratings and Bond Yield Spreads: Continuous Risk Pricing at the Investment-Grade Threshold

Replication files & code for an ECO375 course project.

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📄 Project Description

This repository contains the paper PDF, code, and supporting files, for a regression analysis of Bloomberg-sourced U.S. Corporate Bond Yields. The study investigates whether bond yield spreads reflect a pricing discontinuity at the threshold between investment-grade and junk-grade credit ratings. Using interaction models, the project explores whether yield spreads are more sensitive to credit quality declines for junk bonds than for investment-grade bonds.

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🗂️ Datasets

Source:
Bloomberg Terminal – U.S. corporate bonds with 5–10 year maturities (as of November 7, 2024).

Included File:

• Project_Working_Copy.dta – Cleaned and processed dataset used in all analyses.

Note: Due to licensing restrictions, the raw dataset is not publicly available. The .dta file contains a processed version suitable for replication.

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💻 Code

File: Project Code.do
This Stata .do file performs the following:

1. Loads the dataset
2. Runs regression models:
   • Model 6: Interaction terms without controls
   • Model 7: Full model with bond maturity, coupon rate, and industry fixed effects
3. Generates all tables and figures from the final paper

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🔁 Replication Instructions

1. Ensure Project_Working_Copy.dta and Project Code.do are in the same directory
2. Open the .do file in Stata (v17 or higher)
3. Run the code either line-by-line or all at once

⚙️ Dependencies

• Software: Stata (tested on version 17)
• Packages: All commands used are native to Stata; no external packages required

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⚠️ Limitations

• Replication assumes access to Bloomberg-sourced bond data for full validation
• Raw data cannot be shared due to licensing restrictions