Anatomy of Corporate Credit Spreads: The Great Recession vs. COVID-19
Miguel Faria-e-Castro and
Julian Kozlowski ()
No 2020-035, Working Papers from Federal Reserve Bank of St. Louis
We compare the evolution of corporate credit spreads during the Great Recession and the COVID-19 pandemic. The two crises featured increases of similar magnitudes in the median and cross-sectional dispersion of credit spreads, but the pandemic was short-lived and different sectors were affected. The micro-data reveal larger differences between the two episodes: the Great Recession featured an increase in the across-firm dispersion, and leverage was an important predictor of credit spreads. Differently, the COVID-19 crisis displayed a larger increase in within-firm dispersion, and funding liquidity was a more important predictor of movements in spreads. These findings suggest that, at the corporate level, the Great Recession was primarily a solvency crisis, while COVID-19 was a liquidity crisis.
Keywords: Credit Spreads; Great Recession; COVID-19 (search for similar items in EconPapers)
JEL-codes: E44 G12 G32 (search for similar items in EconPapers)
Pages: 26 pages
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