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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.

JEL Classification: E44; G12; G32;

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

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Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2020-10-09

Number: 2020-035

Note: Superseded by working paper 2025-019, "When Liquidity Matters: Firm Balance Sheets during Large Crises" (https://doi.org/10.20955/wp.2025.019)

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