Measuring Corporate Bond Market Dislocations

Abstract: We link bond market functioning to future economic activity through a new measure, the Corporate Bond Market Distress Index (CMDI). The CMDI coalesces metrics from primary and secondary markets in real time, offering a unified measure to capture access to capital markets credit. The index correctly identifies periods of distress and predicts future realizations of commonly used measures of market functioning, while the converse is not the case. We show that disruptions in access to corporate bond markets have an economically material, statistically significant impact on the real economy, even after controlling for standard predictors including credit spreads, which emphasizes the need to evaluate credit market conditions from a broader perspective than secondary market spreads.

Keywords: corporate bond market conditions; corporate bond spreads; corporate bond issuance; corporate bond liquidity;

JEL Classification: C43; E37; G12; G19;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2021-01-01

Number: 957

Note: Revised December 2022.