Corporate Loan Spreads and Economic Activity

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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: November 14, 2020

Abstract

We study the predictive power of loan versus bond spreads for business cycle fluctuations. Using a novel credit spread measure derived from the secondary loan market, we show that loan market-based credit spreads have additional predictive power for macroeconomic outcomes (such as employment and industrial production) compared to bond spreads as well as other credit spreads and equity returns, both in the U.S. and Europe. Differences in the composition of firms borrowing in loan or bond markets are important in understanding the differential predictive power of both credit spreads. Industry specific loan spreads predict different industry cycles and can be used to construct alternative weighting schemes which further improve the predictive power of loan spreads.

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 (November 14, 2020). Available at SSRN: https://ssrn.com/abstract=

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

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