Measuring Corporate Bond Market Dislocations

72 Pages Posted: 20 Jan 2021 Last revised: 1 Jul 2021

See all articles by Nina Boyarchenko

Nina Boyarchenko

Federal Reserve Bank of New York

Richard K. Crump

Federal Reserve Banks - Federal Reserve Bank of New York

Anna Kovner

Federal Reserve Bank of New York

Or Shachar

Federal Reserve Bank of New York

Date Written: January 1, 2021

Abstract

We propose the Corporate Bond Market Distress Index (CMDI) to quantify corporate bond market dislocations in real time. The index takes a preponderance-of-metrics perspective to combine a broad set of measures of market functioning from primary and secondary markets but not driven by any one statistic. We document that the index correctly identifies periods of dislocations and predicts future realizations of commonly used measures of market distress, while the converse is not the case. Moreover, the CMDI is an economically and statistically significant predictor of future economic activity, even after controlling for standard predictors, including credit spreads.

Keywords: corporate bond market conditions, corporate bond spreads, corporate bond issuance, corporate bond liquidity

JEL Classification: G12, G19, C43, E37

Suggested Citation

Boyarchenko, Nina and Crump, Richard K. and Kovner, Anna and Shachar, Or, Measuring Corporate Bond Market Dislocations (January 1, 2021). FRB of New York Staff Report No. 957, Rev. July 2021, Available at SSRN: https://ssrn.com/abstract=3767021 or http://dx.doi.org/10.2139/ssrn.3767021

Nina Boyarchenko

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7339 (Phone)
212-720-1582 (Fax)

Richard K. Crump (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Anna Kovner

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Or Shachar

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
(212) 720-6974 (Phone)
(212) 720-1582 (Fax)

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