An analysis of the underlying variables on the credit spread of the Swedish corporate bond market

Abstract: The purpose of this thesis is to define which variables affect the average credit spread on the Swedish bond market. The study is conducted via the help of Enter Fonder, who contributes with data and insight into the Swedish corporate bond market. Earlier research has put a lot of weight on the connection between default risk and credit spread. The exact effect is however still debated and it is unclear which variables best describe the default risk. A multilinear regression analysis is conducted, studying the effect on the average credit spread in the NOMX-index (NOMXCRSP) with the following predictor variables: Treasury rate, Predicted EPS amongst OMXS30-companies, Change in net asset under management (AUM) of Swedish corporate bonds, The average credit spread on two European and two American counterparts to NOMX, D/E-ratio and EBITDA-margin amongst OMXS30-companies and finally PMI-index from both the industry and service sector. The regression analysis is based on 89 data points which were aggregated into an equivalent interval on a monthly basis. The final results presents a model of seven variables consisting of all the four international indexes, treasury rate, predicted EPS and change in net AUM, and was able to explain around 87% of the variance in the data.