The impact of the ECB’s monetary policy on corporate borrowing costs

2021 ◽  
pp. 2150014
Author(s):  
Houssam Bouzgarrou ◽  
Siwar Ben Afia ◽  
Abdelkader Derbali
Keyword(s):  
Monetary Policy ◽  
Corporate Bond ◽  
Credit Spreads ◽  
Borrowing Costs ◽  
Corporate Bond Market ◽  
Corporate Credit ◽  
Daily Data ◽  
Corporate Borrowing ◽  
Financial Credit ◽  
The Impact

This paper examines the impact of the ECB’s monetary policy on corporate borrowing costs. We use an event study method to assess and compare the effects of both conventional and unconventional monetary policy on Germany and French corporate bond market (credit spreads). The sample of our research consists of daily data collected during the period from 04 January 1999 to 27 February 2015. This period spans the pre-crisis which begins when the ECB has launched the Economic and Monetary Union (EMU) and became responsible for the monetary policy in the euro area. We find significantly negative relation between conventional surprise and corporate credit spreads. Moreover, we find that a raise in German non-financial credit spreads and French credit spreads domestic in response to the SMP announcement. The OMT lowers the German non-financial credit spreads, while it raises German bank credit spreads and French corporate credit spreads both domestic and bund for two sectors. Finally, the LTROs are associated with a raise in corporate credit spreads. Our findings are confirmed in robustness checks by changing the non-standard monetary policy announcements with monetary policy event dummies used as one variable.

scholarly journals Impact of Readability on Corporate Bond Market

2019 ◽  
Vol 12 (4) ◽  
pp. 184 ◽  
Author(s):  
Jieyan Fang-Klingler
Keyword(s):  
Transaction Costs ◽  
Annual Report ◽  
Bond Market ◽  
Corporate Bond ◽  
Credit Spreads ◽  
Annual Reports ◽  
Corporate Bond Market ◽  
Market Participants ◽  
The Us ◽  
The Impact

This paper investigates the impact of annual report readability on the corporate bond market. My findings indicate that in the US corporate bond market, firms with less readable annual reports tend to have higher credit spreads, higher credit spread volatilities, higher transaction costs, higher transaction costs volatility, smaller trade size, higher number of trades and higher number of trades volatility. This paper also provides the first answers to the question as to whether annual report readability matters to international market participants in the corporate bond market. My findings provide evidence that in the EUR corporate bond market, firms with more readable annual reports are associated with lower credit spreads.

Monetary Policy Surprises and Corporate Credit Spreads

2020 ◽  
Author(s):  
Difang Huang ◽  
Xinjie Wang ◽  
Zhaodong Zhong
Keyword(s):  
Monetary Policy ◽  
Credit Spreads ◽  
Corporate Credit

January sentiment effect in the US corporate bond market

2018 ◽  
Vol 10 (4) ◽  
pp. 370-386 ◽  
Author(s):  
Zhongdong Chen ◽  
Karen Ann Craig
Keyword(s):  
Fixed Effects ◽  
Investor Sentiment ◽  
Bond Market ◽  
Corporate Bond ◽  
Content Type ◽  
Corporate Bond Market ◽  
The Us ◽  
Bond Spreads ◽  
The Impact ◽  
Allocation Decisions

Purpose The purpose of this paper is to investigate the impact of January sentiment on investors’ asset allocation decisions in the US corporate bond market during the rest of the year. Specifically, the study evaluates if the shift in January sentiment is a predictor of corporate bond spreads from February to December. Design/methodology/approach Using corporate bond trades reported in TRACE between 2005 and 2014, the authors examine the ability of the Index of Consumer Sentiment and the Index of Investor Sentiment to predict bond spreads over the 11 months following January. The study evaluates both the sign of the change in sentiment and the magnitude of the change in sentiment using two generalized linear models, controlling for industry, bond and firm fixed effects. Portfolios are analyzed based on yield, firm size and firm leverage. Additional analysis is performed to ensure results are robust to the impacts of the subprime financial crisis. Findings This paper finds that the changes in the sentiment measures in January predict bond spreads associated with bond trades in the subsequent 11 months, and this phenomenon, which the authors label as the “January sentiment effect,” has opposing impacts on risky and less risky bond portfolios. Originality/value This paper adds to the literature on the relationship between sentiment and investor’s allocation decisions. The evidence documented in this study is the first known to find that investors’ allocation decisions in a year are driven by their sentiment in January.

scholarly journals Markets: Transparency and the Corporate Bond Market

2008 ◽  
Vol 22 (2) ◽  
pp. 217-234 ◽  
Author(s):  
Hendrik Bessembinder ◽  
William Maxwell
Keyword(s):  
Corporate Bonds ◽  
Bond Market ◽  
National Association ◽  
Corporate Bond ◽  
Transaction Data ◽  
Corporate Bond Market ◽  
The Public ◽  
The Impact ◽  
The U.S ◽  
Trade Press

For decades, corporate bonds primarily traded in an opaque environment. Quotations, which indicate prices at which dealers are willing to transact, were available only to market professionals, most often by telephone. Prices at which bond transactions were completed were not made public. The U.S. corporate bond market became much more transparent with the introduction of the Transaction Reporting and Compliance Engine (TRACE) in July 2002. Beginning that date, bond dealers were required to report all trades in publicly issued corporate bonds to the National Association of Security Dealers, which in turn made transaction data available to the public. In this paper, we describe trading protocols in the corporate bond market and assess the impact of the increase in transparency on the market. We review how TRACE has affected the costs that corporate bond investors paid to bond dealers for their transactions. We canvass the opinions of a variety of finance professionals and consider articles in the trade press to obtain a broader view of the impact of transparency on the corporate bond market

Dealer Inventory Constraints in the Corporate Bond Market during the COVID Crisis

FEDS Notes ◽  
2021 ◽  
Vol 2021 (2918) ◽  
Author(s):  
Craig A. Chikis ◽  
◽  
Jonathan Goldberg ◽  
Keyword(s):  
Financial Market ◽  
Corporate Bonds ◽  
Bond Market ◽  
Market Liquidity ◽  
Corporate Bond ◽  
Credit Spreads ◽  
Corporate Bond Market ◽  
Inventory Constraints ◽  
Bond Spreads

Beginning in late February 2020, market liquidity for corporate bonds dried up and corporate bond credit spreads soared amid broad financial market dislocations related to the COVID-19 pandemic. The causes of this liquidity dry-up and the spike in corporate bond spreads remain subjects of debate.

scholarly journals A Quantitative Analysis of Risk Premia in the Corporate Bond Market

2019 ◽  
Vol 13 (1) ◽  
pp. 3 ◽  
Author(s):  
Sara Cecchetti
Keyword(s):  
Quantitative Analysis ◽  
Credit Risk ◽  
European Central Bank ◽  
Risk Premia ◽  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market ◽  
European Central ◽  
Corporate Credit ◽  
Corporate Securities

Measures of corporate credit risk incorporate compensation for unpredictable future changes in the credit environment and compensation for expected default losses. Since the launch of purchases of government securities and corporate securities by the European Central Bank, it has been discussed whether the observed reduction in corporate credit risk was due to the decrease in risk aversion favored by the monetary easing or by expectations of lower losses due to corporate defaults. This work introduces a new methodology to break down the factors that drive corporate credit risk, namely the premium linked to cyclical and monetary conditions and that linked to the restructuring of the companies. Untangling these two components makes it possible to quantify the drivers of excess returns in the corporate bond market.

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