Corporate Loan Spreads and Economic Activity

Anthony Saunders, Alessandro Spina, Sascha Steffen and Daniel Streitz

The Review of Financial Studies, 2025, vol. 38, issue 2, 507-546

Abstract: We investigate the predictive power of loan spreads for forecasting business cycles, specifically focusing on more constrained, intermediary-reliant firms. We introduce a novel loan-market-based credit spread constructed using secondary corporate loan-market prices over the 1999 to 2023 period. Loan spreads significantly enhance the prediction of macroeconomic outcomes, outperforming other credit-spread indicators. We also explore the underlying mechanisms and differentiate between borrower fundamentals and financial frictions. Evidence suggests that supply-side frictions are a decisive factor in the forecasting ability of loan spreads.

Keywords: E23; E44; G20 (search for similar items in EconPapers)
Date: 2025
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