Corporate Yields and Sovereign Yields

45 Pages Posted: 29 Jan 2020

See all articles by Julia Bevilaqua

Julia Bevilaqua

University of California, Santa Cruz

Galina Hale

Federal Reserve Bank of San Francisco

Eric Tallman

Federal Reserve Banks - Federal Reserve Bank of San Francisco

Date Written: January 2020

Abstract

We document that positive association between corporate and sovereign cost of funds borrowed on global capital markets weakens during periods of unusually high sovereign yields, when some corporate borrowers are able to issue debt that is priced at lower rates than sovereign debt. This state-dependent sensitivity of corporate yields to sovereign yields has not been previously documented in the literature. We demonstrate that this stylized fact is observed across countries and industries as well as for a given borrower over time. It is not explained by a different composition of borrowers issuing debt during periods of high sovereign yields, by the relationship between corporate and sovereign credit ratings, and only partially explained by financial crises and IMF programs. We propose a simple information model that rationalizes our empirical observations: when sovereign yields are high, corporate yields are less sensitive to sovereign yields.

Keywords: bond, crisis, debt

JEL Classification: E52, F34, F36, F65

Suggested Citation

Bevilaqua, Julia and Hale, Galina and Tallman, Eric, Corporate Yields and Sovereign Yields (January 2020). CEPR Discussion Paper No. DP14344, Available at SSRN: https://ssrn.com/abstract=3526070

Julia Bevilaqua (Contact Author)

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Galina Hale

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3131 (Phone)
415-974-2168 (Fax)

HOME PAGE: http://www.frbsf.org/economic-research/economists/galina-hale/

Eric Tallman

Federal Reserve Banks - Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
158
PlumX Metrics