Long rates, life insurers, and credit spreads
File(s)
Accepted version
Author(s)
Li, Ziang
Type
Journal Article
Abstract
This paper proposes a new channel through which long-term interest rates transmit to credit spreads. When life insurers carry negative duration gaps, higher rates reduce their liabilities more than assets. Rate increases therefore boost equity and risk-bearing capacity, lowering equilibrium credit spreads. Empirically, I test this channel with bond-level yields and a maturity-based discontinuity in bond ownership. Insurers’ trades confirm the mechanism: after rates rise, insurers shift portfolios towards riskier, high-yield bonds. As rates increase, bonds more heavily held by life insurers experience greater spread reductions. The results show that institutional duration mismatch shapes credit spreads and corporate financing conditions.
Editor(s)
Puri, Manju
Date Issued
2026-08-31
Date Acceptance
2026-08-01
Citation
The Review of Financial Studies, 2026
ISSN
0893-9454
Publisher
Oxford University Press (OUP)
Journal / Book Title
The Review of Financial Studies
Copyright Statement
Copyright © The Author(s) 2026. Published by Oxford University Press on behalf of The Society for Financial Studies. This is the author’s accepted manuscript made available under a CC-BY licence in accordance with Imperial’s Research Publications Open Access policy (www.imperial.ac.uk/oa-policy)
License URL
Publication Status
Published online
Article Number
hhag079
Date Publish Online
2026-08-31