Hi All
It is my understanding that bank loans are usually priced over LIBOR and corporate bond spreads are calculated based on the relevant government bond rate. Why is this? It is my understanding the government bond rate (certainly for the US, UK, Germany etc.) is the "risk free" rate but LIBOR is not precisely the risk free rate as it considers the risk of the banking system. Would it be valid to compare the credit margins/credit spreads of loans and bonds given the base rates are different?
Many thanks
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