Working Paper: NBER ID: w28868
Authors: Bo Becker; Efraim Benmelech
Abstract: Corporate bond markets proved remarkably resilient against a sharp contraction caused by the 2020 Covid-19 pandemic. We document three important findings: (1) bond issuance increased immediately when the contraction hit, whereas, in contrast, syndicated loan issuance was low; (2) Federal Reserve interventions increased bond issuance, while loan issuance also increased, but to a lesser degree; and (3) bond issuance was concentrated in the investment-grade segment for large and profitable issuers. We compare these results to previous crises and recessions and document similar patterns. We conclude that the U.S. bond market is an important and resilient source of funding for corporations.
Keywords: Corporate Bond Market; Financial Crises; COVID-19 Pandemic; Bond Issuance; Loan Origination
JEL Codes: E43; E44; E51; G01; G21; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher credit quality (G32) | increased bond issuance (H74) |
| fundamental differences between banks and bond investors (G21) | banks less able to originate loans during crises (G21) |
| unconventional monetary policy interventions (E52) | increased bond issuance (H74) |
| unconventional monetary policy interventions (E52) | muted effect on loan origination (G21) |
| 10-year treasury yield (E43) | loan origination (G51) |
| AA-AAA spread (C46) | loan origination (G51) |
| AA-AAA spread (C46) | bond issuance (H74) |