The Global Credit Cycle

Nina Boyarchenko and Leonardo Elias

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

Abstract: Using a large cross-section of corporate bond returns around the world, we construct a novel global credit factor that prices international corporate bonds in both the time-series and the cross-section. We estimate the global credit factor as a function of both U.S. credit spreads and the VIX, and show that incorporating information from nonlinearities and from interactions between the two predictors is important for the forecasting performance of the global credit factor. In the cross-section, riskier bonds and bonds of issuers in riskier countries have a higher loading on the global credit factor. Large tightenings in the global price of risk correspond to deteriorations in local credit conditions, with persistent increases in both credit spreads and firm default probabilities. Finally, we explore transmission mechanisms and show that flows into bond mutual funds likewise load negatively on the global price of risk, with high yield mutual funds the most affected.

Keywords: global financial cycle; corporate bond returns; return predictability; international capital flows; credit and real activity outcomes (search for similar items in EconPapers)
JEL-codes: F30 F44 G12 G15 (search for similar items in EconPapers)
Pages: 82
Date: 2024-03-01
New Economics Papers: this item is included in nep-fdg, nep-fmk, nep-ifn and nep-opm
Note: Revised February 2026.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:98024

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DOI: 10.59576/sr.1094

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