Credit curve from bond quotation

pascal2006 · July 30th, 2009, 10:51 am

Hi, I want to build a credit curve for an entity who don't have CDS data, but there are some bonds quoted in Bloomberg.what is the procedure to build the credit curve in this case, please If someone have a paper on this stuff, plesase send it to me.I'm a newbie in credit, so sorry for this kind of question. Thanks

Yossarian22 · July 31st, 2009, 6:45 pm

get the z-spread which is quoted in BBG. this is a god proxy for the cds spread. If you really must get the cds spread look at a paper by Pugachevsky.

pascal2006 · August 3rd, 2009, 6:37 am

Ok, Thanks I will check the paper and implement it.

cigor · August 4th, 2009, 1:23 pm

for bonds whithout options: asset swap spread - this should be the same as CDS in theory if you can get funding at Libor.for callable/puttable bonds : option adjusted spread as a best proxy.

beifert · August 18th, 2009, 1:44 pm

Particularly right now, there is a large negative CDS-bond basis in the market, which means CDS spreads are typically lower than Z-spreads, asset swap spreads or option-adjusted spreads, in some cases by > 100bp. There are many factors which contribute to this, liquidity premia arguably being foremost. So pricing a CDS spread using bond spreads is likely to give you an overly cheap credit estimate. This is where quasi-science becomes quasi-art, but you might adjust for the average CDS-cash basis in the company's sector or subsector.