Was the Coronavirus Fear or the Stimulus Package that Drove the Subordinated Bond Market? Evidence from US

14 Pages Posted: 9 Jul 2021

See all articles by Polydoros Tzanakis

Polydoros Tzanakis

University of the Aegean - Department of Financial Engineering & Management

Date Written: June 15, 2021

Abstract

This note investigates the determinants of subordinated bank yields during the COVID-19 pandemic phase in the United States. Using Google Trends, we construct a coronavirus fear index to test the effect of health risk on the subordinated bond yields of 7 bank holding companies. With panel estimations, the results suggest a short-run relationship between yields and inputs factors. After 20 March, no matter what marketto- book a company has, the level of society’s fear, and Treasury yields, the key factor behind the subordinated yield changes is the stimulus package. The insights from this research could be practical for regulators in designing fiscal, monetary, and bank policies.

Keywords: COVID-19, Banking sector, Subordinated bonds, Google Fear Index, Panel Data

JEL Classification: C33, G12, G40

Suggested Citation

Tzanakis, Polydoros, Was the Coronavirus Fear or the Stimulus Package that Drove the Subordinated Bond Market? Evidence from US (June 15, 2021). Available at SSRN: https://ssrn.com/abstract=3880971 or http://dx.doi.org/10.2139/ssrn.3880971

Polydoros Tzanakis (Contact Author)

University of the Aegean - Department of Financial Engineering & Management

8 Michalon str
Chios, GR 82 100
Greece

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