The Global Credit Cycle

Nina Boyarchenko and Leonardo Elias

No 1094, Staff Reports from Federal Reserve Bank of New York

Abstract: We document a global credit cycle that generates predictable co-movement in corporate bond returns worldwide. Using a large panel of international corporate bonds, we construct a single factor as a nonlinear function of credit spreads, equity market volatility, and their interactions. The global credit factor explains up to 13 percent of in-sample and up to 8 percent of out-of-sample variation in bond-level three-month-ahead returns. Unlike broader measures of global financial conditions, the global credit factor simultaneously captures time-series return predictability and cross-sectional differences in risk exposures across ratings, currencies, and countries. Tighter global credit conditions are associated with deteriorations in local credit conditions and outflows from global bond funds. Taken together, our results are consistent with the factor proxying for a common, time-varying global price of credit risk.

Keywords: global financial cycle; corporate bond returns; credit risk premia; global fund flows (search for similar items in EconPapers)
JEL-codes: F30 F44 G12 G15 (search for similar items in EconPapers)
Pages: 84
Date: 2024-03-01
New Economics Papers: this item is included in nep-fdg, nep-fmk, nep-ifn and nep-opm
Note: Revised May 2026.
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Citations: View citations in EconPapers (2)

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DOI: 10.59576/sr.1094

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