The Finance Brown Bag Seminar is held by the Institute for Finance, Banking and Insurance (WU Vienna) and the Vienna Graduate School of Finance (VGSF). It serves as a presentation platform for PhD students, faculty members, and visitors. An overview of BBS on the website of the Institute for Finance, Banking and Insurance.
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Benjamin Karner, JKU Linz
The Bond Agio Premium in High-Yield Markets
with Franziska Wazinger
This paper investigates the presence of a bond agio premium in high-yield bond markets. Higher-priced bonds carry a greater potential loss in case of default compared to lower-priced bonds for which investors should be compensated. Leveraging constituent-level, high-yield bond index data from both developed and emerging markets spanning January 2013 to June 2024, we empirically test for the existence of this premium. Using CDS data and their implied probabilities of default, we compute theoretical bond agio premia, which we compare to our empirical findings to assess if investors adequately account for this additional risk. Taking our empirical measure for the bond agio premium as a given, we are able to calculate market implied recovery rates. Our findings provide robust evidence supporting the existence of a bond agio premium, offering new insights into risk compensation mechanisms within high-yield bond markets.
