It’s What You Say and What You Buy: A Holistic Evaluation of the Corporate Credit Facilities

Abstract: We document that the announcement of the corporate credit facilities by the Federal Reserve (PMCCF and SMCCF) had an immediate positive impact on corporate bond market prices and liquidity, with a third of the effect realized on the announcement date. We document immediate pass-through into primary markets, particularly for eligible issuers. Improvements continue after the initial announcement is made as additional information is shared and purchases begin, with the impact of bond purchases larger than the impact of purchases of ETFs. Exploiting cross-sectional evidence, we see that the improvement in corporate credit markets can be attributed both to announcement effects of Federal Reserve interventions on the economy more broadly as well as to the facilities specifically, through differential effects on eligible issues.

Keywords: corporate credit facilities; bond liquidity; credit spreads; purchase effects;

JEL Classification: G12; G18; G19;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2020-07-01

Number: 935