Modelling the Credit Spreads and Long-Term Relationships of Thai Yankee Bond Issues

This study investigates the yield spread between Thai Government bonds issued in the US domestic market ("yankee" bonds) and US Treasury bonds to determine the long-term equilibrium dynamics and the factors that affect changes in credit spreads. The sample period investigated was from 5 May 1999 to 26 March 2002. The results suggest that the long-term equilibrium relationship holds only between Thai Yankee bonds and long-term US bonds, rather than shorter or equivalent maturity bonds. Also, changes in the credit spreads of Thai Yankee bonds are generally negatively related to changes in the Thai SET Index. Changes in US Treasury bonds also tend to negatively affect spreads on short Thai Yankee bonds and positively affect spreads on long Thai Yankee bonds, though other macroeconomic factors, including exchange rate and capital flow variables, were generally not important.