Measuring Corporate Bond Market Dislocations
69 Pages Posted: 20 Jan 2021 Last revised: 4 Jan 2023
Date Written: January 1, 2021
We link bond market functioning to future economic activity through a new measure, the Corporate Bond Market Distress Index (CMDI). The CMDI coalesces metrics from primary and secondary markets in real time, offering a unified measure to capture access to capital markets credit. The index correctly identifies periods of distress and predicts future realizations of commonly used measures of market functioning, while the converse is not the case. We show that disruptions in access to corporate bond markets have an economically material, statistically significant impact on the real economy, even after controlling for standard predictors including credit spreads, which emphasizes the need to evaluate credit market conditions from a broader perspective than secondary market spreads.
Keywords: corporate bond market conditions, corporate bond spreads, corporate bond issuance, corporate bond liquidity
JEL Classification: G12, G19, C43, E37
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