Corporate Bond Illiquidity: Evidence from Government Guarantees

39 Pages Posted:

See all articles by Kurt F. Lewis

Kurt F. Lewis

Board of Governors of the Federal Reserve System

Lubomir Petrasek

Federal Reserve Board

Date Written: July 1, 2020

Abstract

We use a matched sample of corporate bonds that are guaranteed by the full faith and credit of the U.S. government and non-guaranteed corporate bonds of the same issuers to examine default and non-default related components in bond spreads. We find that less than one-fifth of the yield spread between short-term, investment grade corporate bonds and Treasury securities is compensation for illiquidity. Our estimates of the liquidity component in corporate bond spreads differ significantly from the bond-CDS basis. We also find evidence that the corporate bond bid-ask spread is largely related to credit risk.

Keywords: Liquidity, Credit Risk, Corporate Bonds, Government Guarantees

JEL Classification: G12, G18

Suggested Citation

Lewis, Kurt F. and Petrasek, Lubomir, Corporate Bond Illiquidity: Evidence from Government Guarantees (July 1, 2020). Available at SSRN: https://ssrn.com/abstract=

Kurt F. Lewis

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://kurtflewis.com

Lubomir Petrasek (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
5
PlumX Metrics