Working Paper: CEPR ID: DP15432
Authors: Nina Boyarchenko; Anna Kovner; Or Shachar
Abstract: We evaluate the impact of the Federal Reserve corporate credit facilities (PMCCF and SMCCF). A third of the positive effect on prices and liquidity occurred on the announcement date. We document immediate pass through into primary markets, particularly for eligible issuers. Improvements continue as additional information is shared and purchases begin, with the impact of bond purchases larger than the impact of purchases of ETFs. Exploiting cross-sectional evidence, we see the greatest impact on investment grade bonds and in industries less affected by COVID, concluding that the improvement in corporate credit markets can be attributed both to announcement effects of Federal Reserve interventions on the economy and to the specific differential impact of the facilities on eligible issues.
Keywords: corporate credit facilities; bond liquidity; credit spreads; purchase effects
JEL Codes: G12; G18; G19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve's announcement of the PMCCF and SMCCF (E52) | reduction in average duration-matched spreads (C41) |
| bond purchases (H74) | improvement in credit spreads (G19) |
| announcement (Y20) | reversal of increase in the price of credit risk (G21) |
| announcement effects and specific impacts of the facilities (R53) | improvements in corporate credit markets (O16) |
| announcement (Y20) | enhancement of liquidity (G33) |
| announcement (Y20) | reduction in asset sales (G32) |
| improvements in credit spreads (G19) | more pronounced for investment-grade bonds (G12) |
| improvements in credit spreads (G19) | more pronounced for industries less affected by COVID-19 (F69) |