Report

The Global Credit Cycle

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.

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 February 2026.