The recent swings in financial markets resulted in sharp increases in the borrowing costs of corporates. After steep losses in 2000-2002, as financial markets found their footing, prices on virtually all traded financial claims rose as the economic outlook improved. This pattern was particularly true in the corporate bond market. Especially, the higher-rated companies' ratings are relatively more important since during the last recession, recovery was fairly modest though swings in financial markets were quite large. If this is the case, this turnaround is worth examining. As the risk of spillover from financial sector to others is significant, corporates will find it especially useful to determine how much the volatility would last in higher-rated spreads. The empirical analysis shows the conditional standard deviation, permanent component and transitory component in recent high volatility.

Ratings of higher rated companies are important for the financial markets because of the fact that recovery is fairly modest though swings in financial markets are quite large. Since the risk of spillover from financial sector to the rest is significant, determining how much the volatility is last in higher rated spreads is important for the corporate treasury management.

Crisis in the financial markets might increase the borrowing costs for the financial institutions due to uncertainty. Increasing spreads in corporate bonds in financial sector indicates both the negative perceptions in economy and also the higher cost of borrowing. Increase in the borrowing cost of financial corporate firms reflects itself in the interbank rates and pricing of derivative instruments.