Corporate Loan Spreads and Economic Activity

78 Pages Posted: 9 Jan 2021 Last revised: 11 Apr 2021

See all articles by Anthony Saunders

Anthony Saunders

New York University - Leonard N. Stern School of Business

Alessandro Spina

Copenhagen Business School

Sascha Steffen

Frankfurt School of Finance & Management

Daniel Streitz

Copenhagen Business School

Date Written: April 6, 2021

Abstract

We use secondary corporate loan market prices to construct a novel loan market-based credit spread. This measure has additional predictive power across macroeconomic outcomes beyond existing bond credit spreads as well as other commonly used predictors in both the U.S. and Europe. Consistent with theoretical predictions, our evidence highlights the joint role of financial intermediary and borrower balance sheet frictions. In particular, loan market borrowers are compositionally different from bond market borrowers, which helps explain the differential predictive power of loan over bond spreads. Exploiting industry specific loan spreads and alternative weighting schemes further improves our business cycle forecasts.

Keywords: Secondary loan market, Bonds, Credit supply, Real economic activity

JEL Classification: E23, E44, G20

Suggested Citation

Saunders, Anthony and Spina, Alessandro and Steffen, Sascha and Streitz, Daniel, Corporate Loan Spreads and Economic Activity (April 6, 2021). NYU Stern School of Business Forthcoming, Available at SSRN: https://ssrn.com/abstract=3717358 or http://dx.doi.org/10.2139/ssrn.3717358

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Alessandro Spina

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Sascha Steffen (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee
32-34
Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

Daniel Streitz

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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

Paper statistics

Downloads
395
Abstract Views
1,510
rank
93,697
PlumX Metrics