Behavior of municipal bond default-risk premiums by maturity


Default-risk premiums have traditionally been considered to be an increasing function of time. More recently, a model has been developed which indicates that, under certain conditions, default-risk premiums are invariant to maturity. One study found significant differences in default-risk premiums for long-term corporate bonds and commercial paper. The hypothesis that default-risk premiums are invariant to maturity was tested using municipal bond data. Results indicate that risk premiums are not invariant to maturity. © 1980, All rights reserved.

Publication Title

Journal of Business Research