Long-Term Benchmark Rates in the Norwegian Bond Market

Abstract

Government securities have traditionally been used as benchmarks for long-term interest rates. Today the market for interest rate swaps is also used. The difference between yields on government bonds and swap market rates - the swap spread - can provide information about the properties of these markets as reference markets. This article considers factors that may influence variations in the swap spread in Norway. An econometric analysis shows that in the period 1997-2003, the swap spread varied with developments in the spread between short-term money market rates and government bond yields, price developments in equity markets and the issuance of Eurobonds denominated in NOK. The results provide support for the use of the swap market as a benchmark market when pricing corporate bonds.