Report

The Global Credit Cycle

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.

JEL Classification: F30; F44; G12; G15;

https://doi.org/10.59576/sr.1094

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2024-03-01

Number: 1094

Note: Revised May 2026.