The use of security-by-security databases to monitor the interest rate of private debt securities and to measure credit risk premium - the Portuguese case

The recent turmoil in financial markets brought new challenges and demands to the compilers of statistics. The current set of statistics on financial markets seemed insufficient for an appropriate and prompt intervention of policy-makers. With the present knowledge about the holdings of mortgage-backed securities or asset-backed securities, it proved very difficult to find who ultimately bears the risk of default of underperformance loans. Only more recently, after the presentation of companies’ losses, is becoming possible to measure the extent of the damage caused by the subprime loans crisis. To appropriately answer the new demands that statisticians face in this new context, the introduction of risk categories in the current set of statistics compiled by central banks should be taken into account, as well as the compilation of new statistics, able to monitor risk. In this article, the author explores the use of the Portuguese security-by-security database on issuances to monitor the interest rate of private debt securities and their corresponding spreads. Spreads are obtained from the comparison of the underlying rates of debt securities and market risk-free interest rates of similar maturity, giving a measure of the credit risk premium.