Monetary Policy and Corporate Bond Returns

Review of Asset Pricing Studies (forthcoming)

95 Pages Posted: 26 Mar 2020 Last revised: 28 Apr 2020

See all articles by Haifeng Guo

Haifeng Guo

Durham University Business School

Alexandros Kontonikas

Essex Business School

Paulo F. Maio

Hanken School of Economics - Department of Finance and Statistics

Date Written: April 17, 2020

Abstract

We investigate the impact of monetary policy shocks on excess corporate bonds returns. We obtain a significant negative response of bond returns to policy shocks, which is especially strong among low-grading bonds. The largest portion of this response is related to higher expected bond returns (discount-rate news), while the impact on expectations of future interest rates (interest-rate news) plays a secondary role. However, the interest-rate channel is dominant among high-grading bonds and Treasury bonds. By looking at the two components of bond premia news, we find that the dominant channel for high-rating (low-rating) bonds is term premia (credit premia) news.

Keywords: Corporate Bond Market, Bond Returns, Return Decomposition, Monetary Policy, Bond Premia, Present-Value Relation, Credit Risk

JEL Classification: E44, E52, G10, G12

Suggested Citation

Guo, Haifeng and Kontonikas, Alexandros and Maio, Paulo F., Monetary Policy and Corporate Bond Returns (April 17, 2020). Review of Asset Pricing Studies (forthcoming), Available at SSRN: https://ssrn.com/abstract=3547931

Haifeng Guo

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Alexandros Kontonikas (Contact Author)

Essex Business School ( email )

University of Essex
Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Paulo F. Maio

Hanken School of Economics - Department of Finance and Statistics ( email )

FI-00101 Helsinki
Finland

HOME PAGE: http://sites.google.com/site/paulofmaio/home

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