Corporate Bond Spreads and the Pandemic The St. Louis FED has an economics blog: The ongoing COVID-19 pandemic has caused significant disruption in economic activity across the globe. Financial markets, in particular, have experienced surges in volatility that had not been seen since the 2007-09 financial crisis … The figure below plots the median value for our measure of credit spreads (the difference between a corporate bond’s yield and a benchmark interest rate on U.S. government securities) at the daily frequency, since the beginning of the year … The figure highlights two important dates. The first one is Feb. 28, when stock markets experienced the largest single week declines since the 2008 financial crisis. While the median spread had been stable
Topics:
ProGrowthLiberal considers the following as important: US/Global Economics
This could be interesting, too:
Angry Bear writes Planned Tariffs, An Economy Argument with Political Implications
Bill Haskell writes From the Middle Out and Bottom Up
Bill Haskell writes US-China Decoupling
Ken Melvin writes Public vs Private Wealth – Breaking Free
Corporate Bond Spreads and the Pandemic
The St. Louis FED has an economics blog:
The ongoing COVID-19 pandemic has caused significant disruption in economic activity across the globe. Financial markets, in particular, have experienced surges in volatility that had not been seen since the 2007-09 financial crisis … The figure below plots the median value for our measure of credit spreads (the difference between a corporate bond’s yield and a benchmark interest rate on U.S. government securities) at the daily frequency, since the beginning of the year … The figure highlights two important dates. The first one is Feb. 28, when stock markets experienced the largest single week declines since the 2008 financial crisis. While the median spread had been stable at around 100 basis points since the beginning of the year, it started rising around this date, as financial market turmoil became more evident. The second line corresponds to March 23, the day when the Fed announced a series of new measures to support the economy.
The post discusses the role of monetary policy. I could object that this first chart fails to distinguish between credit spreads on corporate bonds with high credit ratings versus credit spreads on corporate bonds with lower credit ratings. Except the authors present more detail information:
The figures below plot the median and standard deviation of credit spreads for three groups of bonds: Those with high ratings (A- and above) Those with medium ratings (between BBB and BB-) Those with low ratings (B+ and below, including unrated)
While credit spreads are not quite as high as they were during late 2008 and early 2009, this spike in credit spreads is something we should continue to monitor.