The Fed Takes on Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF

Egon Zakrajšek (), Simon Gilchrist, Bin Wei and Vivian Yue

No 15258, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We evaluate the efficacy of the Secondary Market Corporate Credit Facility (SMCCF), a program designed to stabilize the corporate bond market in the wake of the Covid-19 shock. The Fed announced the SMCCF on March 23 and expanded the program on April 9. Regression discontinuity estimates imply that these announcements reduced credit spreads on bonds eligible for purchase 70 basis points. We refine this analysis by constructing a sample of bonds--issued by the same set of companies--which differ in their SMCCF eligibility. A diff-in-diff analysis shows that both announcements had large effects on credit spreads, narrowing spreads 20 basis points on eligible bonds relative to their ineligible counterparts within the same set of issuers across the two announcement periods. The March 23 announcement also reduced bid-ask spreads ten basis points within ten days of the announcement. By lowering credit spreads and improving liquidity, the April 9 announcement had an especially pronounced effect on "fallen angels.'' The actual purchases lowered credit spreads by an additional five basis points and bid-ask spreads by two basis points. These results confirm that the SMCCF made it easier for companies to borrow in the corporate bond market.

Keywords: Covid-19; Credit market support facilities; Regression discontinuity; Diff-in-diff; Event study; Purchase effects (search for similar items in EconPapers)
JEL-codes: E44 E58 G12 G14 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (55)

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Related works:
Journal Article: The Fed takes on corporate credit risk: An analysis of the efficacy of the SMCCF (2024)
Working Paper: The Fed Takes On Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF (2024)
Working Paper: The Fed takes on corporate credit risk: an analysis of the efficacy of the SMCCF (2021)
Working Paper: The Fed Takes On Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF (2020)
Working Paper: The Fed Takes on Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF (2020)
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