This paper examines complex relations existing between corporate credit spread indices
and the Treasury and Equity markets. A cointegration analysis reveals that a long run
relation exists and that some of these connections are credit sensitive. Mainly, it
appears that the equilibrium elasticity of credit spread indices to the stock market is a
function of the credit risk. Modelling further credit spread dynamics, we find that daily
rebalancing of credit portfolios appears justified but the ECM specification suggests
that the one-day lagged deviation from the equilibrium relationship has only a limited
effect. We finally highlight and discuss the lead-lag structure of markets and the
associated causal transmission patterns.