Our website will undergo scheduled maintenance on the morning of Thursday, August 11, 2022. During this time, connection to our website and some of its features may be unavailable. Thank you for your patience and we apologize for any inconvenience.

Working Paper

Anatomy of Corporate Credit Spreads: The Great Recession vs. COVID-19


Abstract: 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;

JEL Classification: E44; G12; G32;

https://doi.org/10.20955/wp.2020.035

Access Documents

Authors

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2020-10-09

Number: 2020-035

Related Works